What the Uniform Fiduciary Standard Will Not Be

Ryan seemed impressed with the SIFMA experts’ knowledge on the topic, and then talked about how important it is that disclosures be clear and short, and not like the “fifty pages” of disclosures in a mortgage contract. When pressed on the research concluding how often disclosures do not work, and may even be harmful, Ryan commented that short and clear disclosures should be understandable.

Putting aside for a moment the entire issue of the appropriate role for disclosures in addressing conflicts, and the fiduciary requirement to not delegate the advisor’s responsibility to a statement – regardless how clear and short – there is some potential good in what SIFMA appears to be doing.

First, SIFMA seems to acknowledge the status quo disclosure regime is ineffective. This is good. Second, if SIFMA is seriously working on reengineering the disclosure regime (with outside “experts”) that may work more effectively, this is also good.

However, these first two points will matter only if there is also a fundamental acknowledgement of investors’ – and thus disclosures’ – limits. This acknowledgement is consistent with the massive scale of investor misunderstandings regarding advisory and brokerage services that almost no one seriously questions today. It is also personified in SEC Commissioner Elisse Walter’s observation that investors should not be expected to understand the legal differences between brokers and advisors. The acknowledgement is that disclosures must be viewed as presumptively ineffective, and bare the burden of proving otherwise before being deemed appropriate. This requirement logically connects the SEC’s investor protection mission with its traditional reliance on disclosures.

Recent opinion polling suggests there is a fundamental and unsettling change taking place in the American mind. It is that many Americans no longer believe the future will be better than the present. They question the foundation of the American dream, and have virtually no faith in Wall Street or Washington. Applying the fiduciary standard consistent with legal precedent to benefit investors can, in a small way, help reverse this larger trend. This is the only way the fiduciary standard will, as Tim Ryan says it must, “work for everyone.”