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Industry Spotlight > Broker Dealers

Fiduciary September: A Time for Client-Centered Advisors to Come Together

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Back in 2009, oncologist Dr. Mark Fesen published “Surviving the Cancer System: An Empowering Guide to Taking Control of Your Care.” In it, he suggests that while the health care system usually means well, it also is a bureaucracy fraught with conflicts of interest from generating revenues, to cutting costs, to reducing workloads.

And, in his experience, the combination of these conflicts often does not result in the best care and treatment of cancer patients. His solution? That cancer patients need an “advocate”—a doctor, relative, friend, or even the patients, themselves—to challenge the system when it seems a patient’s best interest isn’t being served.

I’m sure the parallels to the financial services industry have not escaped you. I was reminded of Dr. Fesen’s book as I read through the press release listing the events during the Institute for The Fiduciary Standard’s 4th “Fiduciary September,” which kicks off today at 4:30 EDT with a conference call on the “Best Practices for Fiduciary Advisors.”  Institute President Knut Rostad says in the release regarding the monthlong event that Fiduciary September comes at “a moment in time as historic as 1940. In 1940, the Advisers Act affirmed fiduciary advice was key to markets and investors.” 

“Flash forward to 2015,” he continued, “and we have regulatory inaction and industry-regulator skirmishes that reveal a growing acceptance of ‘business model neutrality’ as key to markets and investors. This is a reversal of core priorities. Fiduciary investment advisers need to reclaim their heritage. They need to distinguish fiduciary advice from brokerage sales, and adopt and uphold and articulate, in plain language, best fiduciary practices. Fiduciary September events are aimed at furthering this mission.” 

These erosions of the fiduciary standard are detailed in the Institute’s April 2015 white paper “Conflicts of Interest and the Duty of Loyalty at the SEC,” and are currently playing out again in the Department of Labor’s struggles to create a fiduciary standard for advice during IRA rollovers. While most current fiduciary advisors support the DOL’s efforts, and the Dodd-Frank mandate to create a fiduciary standard for brokers, many of them seem to be ambivalent about whether the current fiduciary debate is important to them.

At the same time, we all know why a fiduciary duty matters to clients: Financial services isn’t like buying a car. While buying a car can be tricky, too, most buyers aren’t under any illusions that the salesperson they are talking to is working for anyone other than the dealership. And while the salesman will be friendly and helpful, most of us understand that they have commissions to make, quotas to meet, and certain cars and packages to sell. 

To most “clients,” financial services isn’t nearly that clear. In my experience, they don’t understand even basic principles of personal finance: the time value of money, risk, the impact of seemingly small “costs” (bps), the potential impact of conflicts of interest and, of course, the difference between various “advisors” and who, or what, those advisors are really working for. That’s why disclosures don’t work, and why clients need the help of a true professional: people trust professionals. That’s why it’s no accident that Wall Street has adopted the term “trusted advisor” to describe brokers. 

As for why all this matters to fiduciary advisors, the erosion of the fiduciary standard—as it applies to brokers—is both a problem and an opportunity. On the negative side of the equation, rather than “leveling the playing field,” as many fiduciary advisors had hoped, the securities industry has been able to use Dodd-Frank, the SEC and now possibly the DOL to expand the illusion that brokers are working in the best interests of their clients, when, in fact, they often are not. Despite all of SIFMA’s caterwauling about “business model neutrality,” its actions have actually increased the imbalance by allowing brokerage firms to charge unconstrained levels of fees, while RIA revenues are limited by what’s in the best interest of their clients.  

On the upside, by eroding consumer protections, the brokerage industry has handed full-time fiduciary advisors an opportunity to make a major advance in the public’s awareness of their existence—and their distinction from brokers. By becoming much more aggressive in publicizing what the brokerage industry is doing to fiduciary consumer protections, RIAs can clearly position themselves on the clients’ side of the table, as truly good guys, in this age of posturing and posers. It’s the kind of PR that can lead to excellent marketing strategies as well.  

Unfortunately, unlike the brokerage industry’s lock-step SIFMA and FSI, the fiduciary advisor industry is currently too fragmented to create a unified message: with NAPFA, the FPA, the IAA and the Institute all working independently.

Hopefully, this year’s Fiduciary September will be a catalyst for finally bringing fiduciary advisors together as advocates for financial consumers. 


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