More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
Professor Arthur Laby might have gone back 80 years in his discussion of fiduciary at TD Ameritrade’s Fiduciary Leadership Summit in Palm Beach, Fla., but Don Trone was having none of it.
“I’m going to start with the 4th century B.C. and Aristotle’s notion of ethos,” Trone began during his portion of the afternoon presentation. “It involves leadership, stewardship and governance. I just described something without naming it. What could it be?”
When Trone, president of the Leadership Center for Investment Stewards, heard fiduciary shouted from the audience, he noted the definition of fiduciary he frequently hears.
“It’s often defined as doing what’s in the best interest of the client,” he explained. “Every time I hear it I do this sort of Popeye face. I think, ‘really?’ I’ve never gotten behind that definition because for a true fiduciary, it doesn’t have to be talked about; it’s just understood.”
Referring to his time as a Coast Guard search and rescue pilot, Trone noted he never once had to say he would jeopardize his life to save others; it was just understood.
“Through the eyes of your clients, you have to be viewed as a leader. If you’re not, you’ll never be able to take them through a financial crisis.”
Trone claimed that everything elite advisors are doing evolved from “fiduciary requirements for ethical discernment.”
“Three major events occurred as fiduciary was developing,” Trone said. “The rise of the personal computer allowed for tools like asset allocation software, reporting features and others. Then there was the rise of no-load products and lastly there were investment advisory custodial platforms. Had the confluence of these events not happened at the same time as fiduciary, we would not have the industry we do today.”
Trone didn’t disappoint in making frank and controversial statements, something for which the retired military man is known.
“The SEC RFI is a disaster,” he said. “You cannot compare suitability and fiduciary. It’s like comparing was and peace, which are asymmetrical concepts. I can tell you what war costs, but there is no way to quantify peace. You can calculate suitability, but how do you quantify fiduciary?”
Likewise, he called Dodd-Frank a disaster. Referring to the previous days keynote speaker, former Rep. Barney Frank, D-Mass., Trone said none of the objectives of the law that Frank described would be achieved through more rules and regulations.
“Aristotle noted that rules do not improve the behavior of a society," he said. "More importantly, more rules in modern society promote a dangerous ‘checkmark’ mentality.”
Check out 80 Years of Fiduciary in 15 Minutes: TDAI Fiduciary Summit on AdvisorOne.
Read more about Trone and other advisors in the military in Honoring Advisors Who Serve(d): Memorial Day, 2013.