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October 25, 2012 at 10:35 AM
“There’s a remarkable consensus around a fiduciary standard when advice is being delivered to retail investors,” said Skip Schweiss, introducing a panel of experts on the top regulatory issues facing advisors at the TD Ameritrade Institutional regional conference Tuesday.
Schweiss (left)
, TDAI’s managing director of advisor advocacy and industry affairs, noted that TD surveys advisors each quarter, asking what keeps them up at night. The top answer, he said, is consistently regulatory issues, so “we spend a lot of calories” in advocating for its affiliated RIAs in Washington.
On stage before the formal presentation at the St. Regis hotel in Dana Point, Calif., Schweiss showed his leanings on the fiduciary issue by pulling a ballcap from his pocket that bore the legend, “The ‘F’ Word Rocks,’ thanking his “good friend Knut Rostad” for supplying the chapeau (Mr. Rostad, for the unitiated, is chief compliance officer for the advisory firm Rembert Pendleton Jackson in Falls Church, Va., a leading light of The Institute for the Fiduciary Standard and a blogger for AdvisorOne—see his latest blog post—also on the fiduciary issue).
With that, Schweiss handed off the moderator’s duty to Investment News reporter Mark Schoeff, who introduced the panelists: David Tittsworth, executive director of the Investment Adviser Association; Barbara Roper, director of investor protection of the Consumer Federation of America, and Kevin Carroll, associate general counsel of SIFMA.
Confirming Schweiss’ characterization of regulation as top of mind for advisors and many others, Roper (right) began by saying that “how you regulate financial intermediaries is the single most important thing you can do to protect investors,” that current regulations are insufficient, and thus it’s appropriate to focus on implementation of Section 913 of the Dodd-Frank Act, which called for the SEC to consider applying a fiduciary standard to all advice-givers, not just RIAs, when they are providing investment advice to retail consumers.
There is, she said, a “fundamentally different relationship between broker and customer”and an advisor and clients. Citing the RAND Corp. research conducted on behalf of the SEC, she argued that “the majority of investors act on the recommendations they get” from their brokers or advisors “without doing any additional research,” thus constituting a engagement of “trust that demands a fiduciary relationship.”
Roper said the RAND study also discovered that “investors don’t understand the difference between a broker or an advisor, even after you explain the difference to them—so the investor can’t make an informed decision.”
Kevin Carroll of SIFMA agreed with Roper on this point. “Many of our members are dually registered firms,” and thus the securities organization has a “direct stake in how a fiduciary standard is implemented.” The securities industry realizes, he said, “that brokers and advisors are providing the same service,” so they should be held to the same, higher standard. Moreover, he said SIFMA member firms that follow “best practices are already meeting that standard; it makes consummate sense that the same services be held to the same standard of conduct.”
In response to an advisor in the audience’s exasperated plea that the fiduciary issue was a simple one, Tittsworth responded by saying, “That’s the real debate here—you’ve hit it on the head,” between a principles-based and a rules-based approach to implementing a fiduciary standard. The tension between those two approaches exists not by accident, he suggested. “Section 913 is pretty convoluted” in its language, Tittsworth said, “because it was a compromise between groups like SIFMA and mine.”