I took some time off during the last two weeks, so I’ve gotten a little behind on addressing the comments on my two recent ThinkAdvisor.com blogs: The Case for a New Advisor Designation: ‘Fiduciary-Only’ Advisors, from July 30, and Can a ‘Fiduciary-Only’ Advisor Take Commissions?, from August 13. They contain some excellent and interesting points that warrant repeating and comment.
The first one comes from David Sterling, who describes himself as “hybrid advisor (licensed attorney, securities and insurance professional).” David is concerned that I was “not quite certain about how to affix the ‘fiduciary’ label. If I am not mistaken, [Clark] has interchanged the application of the label to financial as well as investment fiduciary advisors.”
While I did use the term “financial advisor” intentionally, I apologize for any confusion that I might have caused by doing so. At the same time, it seems to me this is exactly the same confusion that retail investors are faced with in an industry where “investment advisors” are strictly regulated, while anyone can call themselves a “financial advisor,” regardless of whether they fall under a fiduciary standard, a part-time fiduciary standard or no fiduciary standard. (Part-time fiduciaries being licensed brokers and insurance agents who also wear RIA hats during a portion of their engagement with a client.) In fact, it’s those latter two standards—part-time and no-time fiduciaries—who inspired me to suggest a “fiduciary only” label.
Mr. Sterling goes on to suggest an alternative remedy for this problem: “Maybe all that is necessary is to simply educate investors about the ‘fiduciary’ limitations imposed under the 1940 Act. I, for one, would not want to be held to a standard that holds me accountable for all matters, transactions and guidance considered ‘financial.’”
As an attorney, I can understand his aversion to such as standard. Yet, according to the CFP Board, CFPs are held to act as fiduciaries when they are doing financial planning (which includes insurance, investments, estate planning, retirement planning and college planning) and when they give investment advice they are held to the ’40 Act RIA standard as well. That seems pretty comprehensively “financial” to me.
As for “investor education,” really? The nuances of the ’40 Act and its “broker exemption,” along with all the case law since, and nuances of “scope of the engagement”… well, it’s solutions like these that cry out for a “fiduciary only” designation. Which financial advisors such as Mr. Sterling would be free to ignore.
Next, P Potts, who is normally more insightful, writes: “I think that the term fiduciary advisor would be a redundancy of RIA, which by law has the fiduciary standard built in.” Of course, P Potts would be right if RIAs were RIAs only.