The most important word to advisors these days is fiduciary, according to Tom Giachetti, chairman of the securities practice at Stark & Stark.
What that means is that advisors are responsible and regulators like the SEC will hold you to it. “You can’t blame anybody. You can’t say, ‘my consultant told me,’” Giachetti said at the fourth annual Junxure Advisor Conference in Denver on Thursday. Advisory firms that rely on consultants do so at their own peril, Giachetti said.
“There’s a war out on your profession,” Giachetti said. For example, the SEC doesn’t appreciate that when clients roll their 401(k) assets into an IRA, they’re getting the value of advisors’ expertise.
The Securities and Exchange Commission has two mandates, Giachetti said: to make sure clients’ money is where it should be and that advisors aren’t doing anything to undermine their clients’ information. The agency shouldn’t be trying to determine whether an advisor is good at his or her job or the kinds of returns they’re getting for their clients’ portfolios.
“If you stink, clients will leave,” he said. He suggested the SEC “fire half the examiners” and hire more forensic accountants and IT professionals to address the agency’s two mandates.
He said the current SEC and its chairwoman, Mary Jo White, are “by far the most aggressive” he’s ever seen. Prior to leading the SEC, White was “one of the best federal prosecutors this country’s ever known,” he said, but that gives her a different approach to regulating the financial industry.
“The president brought her in to do one thing: to clean up Wall Street. And unfortunately, she thinks you’re Wall Street,” Giachetti said.
Compliance is taking advisors’ time away from clients, Giachetti said, and regulators “think they’re improving things. It’s nonsense.”
Giachetti explained some compliance areas where advisors have to be extra careful.