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Regulation and Compliance > Federal Regulation > SEC

Pardon My Authenticity: Fiduciary and Retail Investors

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In his comment to my last blog (“The Boys of September” ), John Hawkes made a good catch, but not because my calculator is broken, rather because apparently I can’t type, or proofread. The ORC Study that I referenced actually states that “76%” of retail investors believe that anyone who calls themselves a “financial advisor,” “financial planner,” or “investment advisor’ has a fiduciary duty to their clients, not “75%” as I wrote. So it’s true that “more than 3 out of 4″ of those misguided clients and would-be clients believe their advisors have to put their interests first, whether they do or not.

John went on to raise a more important issue, when he asked: “…can you tell me what you mean by an ‘authentic’ fiduciary standard? Is it one defined by trust laws, ERISA laws, IRS laws, or what? Which one is authentic?”

My guess is that rather than really asking for information, John is making the point that there are currently a number of fiduciary standards, and by implication, that there is some inconsistency between them that leads to confusion, much like the current situation where financial advisors are regulated by either the SEC or FINRA. He, like many others these days, seems to be suggesting that should the SEC decide in favor of a fiduciary standard for brokers, their action would lead to more confusion, rather than less.

Not only is this not the case, but, in my view anyway, the existence of myriad fiduciary standards supports such a standard for brokers as well. First, to John’s actual question about an “authentic” fiduciary standard; I’m not a lawyer, but my understanding is that each of the fiduciary standards he cites are “principles based,” which means that the folks who fall under each,simply have the duty to “put their clients’ interests first.” How they do that is up to them, and whether they have done that is a matter for a jury and/or a judge to decide. Recommending a proprietary product is a perfect example: no one restricts you from using one, but if you do, you’d better have a very good reason why it was truly in the best interest of the client.

Authentic, then, is simply the language used by many of us who advocate a fiduciary duty for all retail financial advisors, to talk about a standard that requires an advisor truly to put their clients’ interests first, without the loopholes or carveouts that enable advisors sometimes to do otherwise.

This is essentially the case in each of the professions that John cites, and rather than leading to the sky falling, is working quite well in each case, thank you very much. Will the SEC’s fiduciary standard for brokers have slight differences from those other fiduciary regulations/legislation? Of course. Yet if the SEC creates an authentic standard, then brokerage customers who receive investment advice will be entitled to the same high standard of care currently enjoyed by clients of RIAs, trust officers, private bankers, and pension advisors.


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