There were some very interesting comments to my last blog about the recently released Finke/Langdon Report. In comparing states that impose a clear fiduciary duty with those that impose a limited fiduciary duty and those with no fiduciary duty on brokers, the report found there was “no statistical differences” in the ratio of middle class to HNW clients, the range of products provided, the personalization of advice or the costs involved, or in the effect on broker/dealers themselves, w
The first was by consultant David Sterling, who made some curious assertions that warrant further exploration. For instance, he led off with: “And yet, the evidence to substantiate the value of those ‘who allege’ to serve the best interests of their clients remains untested or perhaps, disregarded.”
One can only speculate that by “those who allege to serve the best interest of their clients” he means RIAs, who are required by law (the ‘40 Investment Advisers Act, and subsequent rulings) to serve the best interests of their clients. It’s certainly fair to say that there are some people who fail to comply with virtually any law, and yet, in many cases we can find “evidence” of the actual effects of a particular law. It just so happens that the RIA fiduciary standard vs. the broker suitability standard is an excellent example. Contrary to Mr. Sterling’s assertion that the relative value of these standards are “untested” or “disregarded,” there is considerable research available that sheds light on the issue.
For instance, I modestly cite my own AdvisorOne blog of March 20 that relayed FINRA and Bloomberg data showing that in 2010, there were 5,680 complaints brought against brokers, with half resulting in damage awards. During that same year, the SEC took 113 enforcement actions against investment advisors or investment companies—about 2% of the broker complaints. The relative sizes of those groups in 2010? 50,200 retail brokers vs. 41,500 independent and dually registered RIAs. This seems to suggest that the fiduciary standard is, in fact, having some positive effect.