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September 26, 2012 at 01:57 PM
Avoiding or managing conflicts of interest is, arguably, the centerpiece of a fiduciary’s responsibility and the glue in an advisor/client relationship of trust and confidence. At least this is what one might surmise from the investment professionals who advised Congress as it crafted the Advisers Act of 1940, or the Supreme Court 1963 Capital Gains Research decision or, to fast forward, clear guidance that is offered by the SEC today.
It is in this background context that the more recent barrage of fiduciary-sounding promises from lobbying groups or firms with new-found fidelity to the centuries-old law are particularly important. While SIFMA fervently claims, in its Framework for Rulemaking, that it advocates for a new fiduciary standard that is in the best interest of investors, a simple reading of its own detailed explanation of what its standard means suggests otherwise. It advocates, in some instances quite directly, to merely apply provisions of the suitability standard, a standard that fails to meet the Dodd Frank requirement that it be “no less stringent” than the Advisers Act.
(Note: There’s no question as to how stringent Dodd Frank requires a new uniform fiduciary standard to be. It must be “no less stringent” than the Advisers Act. Yet, as a new uniform standard need not be an overlay of the Advisers Act, there are questions as to how best to achieve this “no less stringent” standard.)
A newer voice that shouts fiduciary fidelity is the dually registered firm, HighTower Advisors. On its website, HighTower states that its mission is to “restore confidence with investors who have lost confidence in the traditional model,” that “when you work with us, you work with advisors who measure themselves against enduring standards,” and “HighTower operates on fiduciary principles.”
Elliot Weissbluth, HighTower’s charismatic CEO, spoke last week at the MarketCounsel RIA conference about the firm’s growth and success in attracting high-end teams of wirehouse brokers to its philosophy of independent advice with fewer conflicts than full service brokerages impose. Elliot is not a typical speaker; he is a speaker’s speaker, exuding energy, enthusiasm and command of his topic.
So it was a bit of a surprise to hear Weissbluth state in his presentation before some 200 investment professionals that the HighTower business model meant HighTower advisors had “zero conflicts of interest.” I turned to my colleague sitting next to me and asked, “Did he say ‘zero conflicts of interest?’” Before he could respond, Weissbluth said, again, as he was finishing his presentation, HighTower advisors had “zero conflicts of interest.”
During the question and answer section, I asked Weissbluth what he meant by “zero conflicts of interest.” I prefaced my question with the observation that, in the eyes of the SEC, while all advisors should seek to avoid conflicts, no advisor is conflict free. He replied that what he meant was that his advisors avoid the conflicts in the wirehouses of multi-compensation In the RIABiz.com article, Brooke Southall quoted Weissbluth as saying “We don’t get paid twice.”
