Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Industry Spotlight > Broker Dealers

Peter Drucker for Wall Street Czar

Your article was successfully shared with the contacts you provided.

Drawing from decades of corporate experiences, Drucker might well have applied lessons learned years ago from GM and Ford. In his 1992 book, Managing for the Future, (Dutton Adult), Drucker talks of his time with their joint management and labor committees. He notes, interestingly, what he could not do, or what he failed to do: “I could not persuade either unions or managements that what they mean by the word quality is not what (their) customers mean…GM and Ford have a compensation structure that rewards dealers for sales of new cars, not for service…Toyota on the other hand rewards service… Why can I not persuade Ford and GM I am right? Because when I tell them to go outside (their companies), they simply talk to their own dealers.”

In the same discussion Drucker advises senior managers, “The next time a salesman goes on vacation, go out and take his or her place… The point of the exercise is that it forces you outside into the market, where results are. Remember, there are no results inside the firm. Up to the point where the customer reorders, there are only costs.”

Drucker would certainly advise Wall Street executives today to find out what retail brokers think. What would brokers tell corporate bosses? About being a fiduciary, they might “surprise” them. Many would say “Bring it on!”

The Committee for the Fiduciary Standard partnered with SEI Advisor Network and surveyed 890 brokers (including commission- and commission-and-fee-compensated) and advisors (fee-based and fee-only-compensated). Findings from the survey include:

Brokers support the fiduciary standard. A majority of brokers (53%) agree all professionals giving investment or financial advice should meet the fiduciary standard; only 27% disagree, while 19% are unsure. Further, 61% agree brokers should not be allowed to ask clients to waive the fiduciary standard.

Brokers and advisors similarly understand key elements of what the fiduciary standard requires. Brokers understand fiduciary advisors must disclose all their compensation and investment expenses in writing (78%); that commission (85%) and proprietary products (91%) are permitted; and that adhering to accepted fiduciary procedures can reduce their liability (60%). Advisors agree.

Brokers and advisors also disagree on some issues. An example of this disagreement? An overwhelming majority of advisors (89%), and a majority of commission- and fee-compensated brokers (53%), agree that the fiduciary standard should not be modified to “better fit brokers’ selling activities.” However, among commission-only brokers only a (36%) minority agree.

The fiduciary discussion too-often reflects the brokerage industry’s longstanding opposition, and is premised on differences (of legal requirements, business models or business practices, etc.), between brokers and advisors. This survey suggests the similarities are important and might be better understood if we listened to brokers as Drucker might have suggested we do. Important? Hard not to think of the “might have been’s” had GM listened to him.

Knut A. Rostad ([email protected]) is the regulatory and compliance officer at Rembert Pendleton Jackson (RPJ), a registered investment advisor in Falls Church, Virginia, and chairman of The Committee for the Fiduciary Standard. The views expressed here are his own and do not necessarily reflect views of the Committee.

Read more of Knut Rostad’s Regulatory Reason blog posts:

Too Rich or Too Thin? November 03, 2009 You can never be too rich or too thin: Can we disclose ourselves out of obesity? Can disclosures replace fiduciary duty?…
A Tail is Not a Leg October 16, 2009 As the rhetoric heats up over regulatory reform one is reminded how much political life has not changed all that much since Abraham Lincoln was quoted noting the following: “How many legs does a dog have if you call the tail a leg? Four…” …
SEC Chairman Speaking the Fiduciary Language September 28, 2009 SEC Chairman Mary L. Schapiro’s September 24th speech, before the Financial Services Roundtable, included her most recent public remarks on the fiduciary standard. The Chairman’s remarks are important. …
Rakoff’s Bank of America Opinion: “The Tipping Point” September 16, 2009 In September 2013 when we look back on Lehman Bothers’ demise, will we also see a “reformed” financial system and regulatory structure? One that may be hard to recognize compared to today’s structure? If “yes,” look to Judge Jed S. Rakoff’s opinion. …
Listen to Chuck August 31, 2009 When Chuck Schwab talks do people listen? They ought to–even when he is off base, as he was in an August 19 opinion piece, “Brokers Aren’t Responsible for Bad Bets,” in The Wall Street Journal….
Disclosures and Evoking the Lewis Liman Defense August 14, 2009 Why did the SEC accept a $33 million settlement in light of its allegations that Bank of America failed to disclose that bonus payments were authorized for up to $5.8 billion? Judge Jed Rakoff wants to know. …
The Authentic Fiduciary Standard–What’s the Fuss About? August 11, 2009 Recent discussion in some quarters has focused on the “similarities” between the fiduciary and “arm’s length” standards. The clear implication appears to be: What’s all the fuss about whether investors retain fiduciary advisors or not? …
Blog: Talking the “Fiduciary Talk” in Washington July 07, 2009 The Obama Administration proposes that brokers giving investment advice should meet a fiduciary standard. SEC Chairman Mary Schapiro states strong support for a fiduciary standard. How will this translate into legislation?…


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.