Fiduciary September and What’s Possible

Roper stipulated, as reported in ThinkAdvisor, “If the Republican commissioners’ view is and remains, ‘Just say no,’ the chair can and should view herself freed from having to negotiate to win their support by watering down the standard… she’d have to have the courage to take a 3-2 vote … (as she did with the) 3-2 vote in support of strengthening credit rating agency rules.” The upshot? Roper’s bottom line, “Courage,” equals a strong fiduciary standard. 

The SEC view of what’s at stake
According to two former SEC regulators, Troy Paredes, a former Commissioner, and Robert Plaze, a former deputy director in the Commission’s Division of Investment Management, a fairly narrow area currently separates suitability rules and a potential uniform standard (per Dodd Frank). Asked how narrow, speaking at the TD Ameritrade Summit? The former regulators suggested that a “2%-3%” difference was about right.

Summit attendees fell silent to digest what it means that two former regulators say that such a  small (i.e: inconsequential) difference separates brokerage rules and rules envisioned under Dodd Frank. 

This view has many implications. For starters: fiduciary advocates are profoundly wrong to say there are important differences between broker rules and Dodd Frank criteria, or wrong to say that fiduciary duties offer much in the way of additional important investor protections.

It implicitly accepts key brokerage industry assumptions—first set out in the Wall Street Lawyer in June 2009 by Thomas Lemke and Steven Stone, and vigorously applied since then by SIFMA—that advisor and broker regulatory regimes are more similar than they are different.

Are We All Brokers, Then?

The core of these assumptions is the idea that conflicted advice is the ‘natural state,’ need not (or cannot) be avoided, and, most importantly, can be good for investors. This view also suggests the entire fiduciary debate has been blown way out of proportion by those who suggest otherwise because, at the end of the day, a 2%-3% “difference” is hardly worth arguing over. In a phrase, this view concludes, with apologies to Milton Friedman,’ We are all brokers, now.’ 

While Jack Bogle’s view about the importance of fee-only fiduciary advisors is a reminder, as is Barbara Roper urging the SEC Chair to accept a 3-2 vote to attain a strong fiduciary standard, of what good can be done, or what is possible, the advocacy for the SIFMA standard coupled with a peek inside how the SEC may view the suitability and fiduciary standards are certainly reasons for pause.

It is unnerving that this 2%-3% view so easily seems to brush aside law and principles underlying fiduciary practices. 

Unnerving, yes, but also useful to highlight the contrast between a regulatory view of the standards, and a professional view of what fiduciary advice means.

It’s a stark contrast that puts the present circumstances in a different light and serves as yet another reminder of what good can be done and what is possible.

More to come on ‘Best Practices’.