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May 04, 2012 at 07:00 AM
Now that Rep. Spencer Bachus reintroduced his bill to establish an SRO for investment advisors (as Melanie Waddell reported on AdvisorOne on April 25), the focus of the re-reg debate has returned to whether FINRA should be that SRO, and whether it should apply SIFMA’s guidelines as a uniform fiduciary standard for brokers and advisors. To sort it all out, I had a conversation with my friend Knut Rostad, compliance officer at Rembert Pendleton Jackson, and founder of The Institute for the Fiduciary Standard.
The conversation started when I asked Knut how he felt about SIFMA’s watered-down fiduciary standard. He replied by saying that calling it a “watered-down” version was completely misleading. The truth, he said, is that SIFMA does not support a fiduciary standard for brokers, or at best, supports it in name only. Consequently, using that term only promoted SIFMA’s fiction.
Despite my defense that “watered down” is the usual term we apply to laws or regulations that have had their original teeth removed, and that calling SIFMA out and out liars on the subject may tend to marginalize one as a melodramatic, Knut made a compelling case that such strong language is warranted. I’ll let you be judge.
Using the PowerPoint from his recent speech at the fi360 conference in Chicago, Knut detailed how the SIFMA standard differs from key elements in the fiduciary standard that RIAs are currently subject to under the Advisers Act of 1940. Here’s what the side-by-side comparison looks like:
Product Recommendations
Advisers Act: Recommendations are made in the client’s best interest.
SIFMA: Recommendation is suitable; no best-interest due care.
Conflicts
Advisers Act: Undermine unbiased advice; must be avoided at all possible.
SIFMA: Need not avoid; may benefit client; champions conflicted advice.
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