Sheryl Garrett, founder and CEO of the Garrett Planning Network, hosted a webinar this summer about the Institute for the Fiduciary Standard’s new Best Practices Affirmation Program in conjunction with group President Knut Rostad and board member Mary Malgoire. As the title suggests, the program aims to help advisors show they are compliant with the institute’s 12 Best Practices for Fiduciary Advisors.
In this era of fiduciary confusion — with differing standards proposed or in place for RIAs (the ’40 Act), brokers (SIFMA), retirement advisors (DOL) and now financial planners (CFP board) — the best-practices program strives to help investors understand the benefits of working with a fiduciary advisor and to identify advisors who are committed to acting in their clients’ best interests.
(Related: Will CFP Board Make History?)
To find out more about the program, I spoke with Knut from his home office in Bethesda, Maryland. Before we got started on the nitty-gritty of the advisory world, I had to ask him how one becomes founder and president of a fledgling organization trying to drag the financial-services industry into the 21st century.
Expecting the standard answer from a broker turned independent advisor, I was surprised when he replied: “After college, I got a job in Washington, D.C., as what you might call a lobbyist-lite … in public affairs, advocacy and communications.
“By 2004,” Knut said, “I was looking to get into the advisory industry, and Don [Rembert, former partner of Lynn Hopewell with the advisory firm Rembert Hopewell] was looking for a new compliance officer at his firm. The SEC had just released a new compliance rule for RIAs, and everyone was scrambling to figure out what it meant. I pointed out that I knew nothing about RIA compliance, and he responded that thanks to the new rule, no one else did either. And besides, they had outside counsel to help sort it out. So, I took the job.”
Knut continued his work with Don on the fiduciary issue. The culmination of their efforts was the creation of the Committee for the Fiduciary Standard led by Kate McBride, who used to work for this publication and now runs the consultancy FiduciaryPath, and Harold Evensky, a financial planner in Coral Gables, Florida, and former CFP Board chair.
“The committee just seemed to come together spontaneously, after some of us met at a conference in May of 2009. We launched a month later,” Knut told me.
“We were an informal group of like-minded colleagues who advocated for a fiduciary standard for all retail financial advisors,” he recalled. “In 2009 and 2010, we took meetings with SEC commissioners, the SEC chair and the top brass at FINRA, and many of us started thinking, ‘Hey, they agree with us.’”
According to Knut, “It was at this point that some members of the committee felt there was light at the end of the fiduciary tunnel. In 2007, the FPA had won its lawsuit against the SEC [preventing it from expanding the ‘broker exemption’ to cover managing investments]. The CFP Board came out with a fiduciary duty for CFPs in 2008. Now FINRA was on board, and Dodd-Frank became law in July 2010.
“My sense was that many of us didn’t think there was a next step. In retrospect, we didn’t appreciate how fervently the other side was about not letting a bona fide fiduciary standard infiltrate brokerage sales,” Knut explained.