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May 16, 2012 at 05:34 AM
This year, trust lawyer, CFP and pension advisor W. Scott Simon won the Tamar Frankel Fiduciary of the Year Award from the Committee for the Fiduciary Standard. Judging by his monthly “Fiduciary Focus” column on Morningstar Advisor alone, it’s easy to see why: month in and month out, Simon delivers the most knowledgeable, articulate and creative commentary on the fiduciary debate anywhere. His April 5 installment “The Great Compromise to the Fiduciary Debate,” for instance, may offer the best solution yet to the broker/advisor regulation conundrum. But if you’re like me, it will take a bit of considering to warm up to it.
Like many great ideas, Simon’s is a simple one: with the brokerage and investment advisory communities squabbling over using their existing standards to “harmonize” the regulation of retail financial advice (and digressing into lame arguments of level playing fields, business model neutrality, and ‘access’ to advice), why not cut the baby in half by choosing a third standard from outside of either industry? Happily, just such a standard can be found in the separate but related field of regulating pension advice: the fiduciary standard of care as mandated under ERISA.
“I have long believed that the best way to resolve this fight lies in subjecting both RIAs and BDs to the ‘sole interest’ fiduciary standard of care found in [ERISA],” Simon writes, concluding that “In one fell swoop, ERISA’s standard would level that proverbial playing field for all concerned.”
What’s more, Simon’s Solomonic compromise’has other advantages. As an outside standard, it’s got no dog in the broker vs. advisor debate, yet the ERISA standard is a far sight better than starting from scratch: It comes with a nearly 40-year plug-and-play legal history of test cases, rulings and interpretations. Best of all, it appeases the misguided crowd who want to beat RIAs over the head with the misdeeds of FINRA leader Bernie Madoff and the ‘need’ for tougher advisor regulation by elevating the advisor standard from a client’s ‘best’ interest, to ‘sole’ interest.
