In his comment to my May 4 blog about SIFMA’s peculiar definition of fiduciary, Phillip Chao agreed wholeheartedly with Knut Rostad’s assertion that categorizing SIFMA’s proposed standard as a “watered down” fiduciary standard is completely misleading:
“In the case of the fiduciary standard, ‘watering down’ would indeed be misplaced. When we speak of the fiduciary standard, it should be thought of as a switch. Either there is light (switch on) or there is darkness (switch off). It cannot be thought of as a "dimmer" where the amount of light gets turned down or dimmed. Simply put, either an investment advisor is willing to meet the twin duties of loyalty and due care or not. The public should not be tolerant with watered down loyalty or due care. The question we should ask ourselves is, “Do I want someone to be sometime or from time to time loyal to me and work for my best interest?” I think the answer is self evident.”
Knut has been on a crusade lately, to convince editors, writers, pundits and other observers (such as yours truly) that taking SIFMA at its word about supporting a “fiduciary standard for brokers” without reviewing the relevant facts is a breach of our journalistic responsibility, and a gross disservice to our readers. As one who is criticized far more often for having a lack of tact rather than a lack of candor, I’m at a bit of loss over why I would have suggested to Knut that calling the folks at SIFMA “liars” for suggesting that they support a fiduciary standard for brokers, when in fact, they support a standard that is anything but. (After all, I’m the same guy who once told a former CFP Board chairman [for whom I have tremendous respect] who uttered a particularly lame rationalization, that planners who go on the Board appear to receive frontal lobotomies.)
What’s more, I’m under no illusion that SIFMA’s standard is anything but a not even thinly veiled attempt to seemingly jump on the fiduciary bandwagon without actually doing so. In fact, I’ve been writing that this is exactly what they would do for just about two years now. So why my sudden squeamishness over calling SIFMA’s proposed standard what it really is?
I suppose I’ve been taking the long view: that now the fiduciary cat is out of the bag—that brokers have not been required to act in their clients’ best interests—the investing public will demand that they inevitably do so. But upon reflection, a universal fiduciary standard is only “inevitable” as long as the public is made aware of attempts to provide something less, under the guise of a fiduciary standard, through the efforts of people like Knut Rostad and Phillip Chao and independent advisors who continue to show clients the difference between a true fiduciary standard, and one that is in name only. Thanks, guys.
See Philip Chao's guest blog for AdvisorOne on the Greg Smith-Goldman Sachs case and its implications for an extended fiduciary standard.