“To be, or not to be?” a fiduciary (with all apologies to Bill Shakespeare) is the question of the hour for broker/dealers. While nobody is naive enough to say that a recent federal appeals court ruling is the final word on the subject of fiduciary duty to investors, a positive development for all parties out of the Financial Planning Association’s (FPA) lawsuit against the SEC over the broker/dealer exemption is a discussion of what is right for the investor and how to balance that with existing or yet-to-be-made law, and running a brokerage business.
The March 30 ruling by the U.S. Court of Appeals in Washington, D.C, vacating Rule 202(a) (11)-1, seems to have surprised many in the independent B/D community, and opened passionate discussion about what happens next.
“It’s very interesting that it turns the clock back and lets us do over. Not many times do you get a do-over,” says John Simmers, the CEO of ING Advisors Network who also is an NASD governor and chairman of the Financial Services Institute. “We’ve got a chance to do it right, and [it's] unprecedented, in terms of who is at the table. You now have the advisors, the planners, the brokers, the custodians, a regulator which represents all of those groups, and an SEC that is talking about making regulation simpler and is challenged with competing globally.”
Some big independent B/Ds don’t think the rollback will affect them, but surely what happens at the wirehouses as a result of eliminating the rule will have an impact on independent B/Ds one way or another. “We’ve never offered fee-based brokerage because we never thought it was a good product for consumers,” says Mark Casady, chairman and CEO of LPL Financial. “I think it’s good for the industry because it’s hard to distinguish when it’s someone offering financial advice as a part time, or incidental, piece of what they do, versus when they are offering financial advice as a key part of what they do. Our view is quite simple: Financial advice should be the hallmark, the reason why a client’s working with you, and then there are a whole range of ways to help them that are brought up in a financial planning process.”
“Most of us already operate as investment advisors; very few of us deal with fee-based brokerage” Simmers notes of independent B/Ds. “The interesting part will be the financial planning aspects of what is or is not a plan–that could shift some of the ways we do business, but not from a problematic perspective.”