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October 02, 2017 at 11:45 AM
Former SEC Commissioner Luis Aguilar spoke these words in 2010 when Dodd-Frank was under construction in Congress: “While the scope of service may vary between clients, the standards of loyalty and care in providing that service should not. You simply cannot be three-quarters of a fiduciary.”
These words reverberate more loudly today, as the range of outcomes on fiduciary rulemaking at the Labor Department, SEC — and in the Certified Financial Planner Board of Standards’ proposed conduct standards — comes into focus.
Two main and disparate outcomes stand out. One comprises “suitability” rules and more disclosures and falls short of fiduciary duties for retail investors. The other comprises fiduciary duties to reasonably ensure conflicts are managed and mitigated.
What separates these outcomes is often overlooked and underscores why Commissioner Aguilar’s statement remains central.
Managing and mitigating conflicts is essential to fulfilling fiduciary requirements, not just desirable or an elective duty, and because generations of experience and research corroborate logic — and common sense teaches us so. According to common sense, as Rutgers Law professor Arthur Laby reminds us, “advice must mean disinterested advice.”
The Consumer Federation of America notes that firms are moving to reduce conflicts and product costs and account minimums as a result of DOL’s fiduciary rule.
There is also no doubt that the CFP Board has made progress to reach fiduciary status. Or as CFP Cheryl Holland put it, at the recent Institute program “Fiduciary Advice at a Crossroads,” progress that puts CFP standards “on the road to professionalism.”
The CFP Board says on managing conflicts, CFPs must “adopt and follow” business practices “to prevent” conflicts from compromising the CFP’s ability to act in a client’s best interest.
What’s at Stake
Did CFP Board make progress? Yes. Did CFP Board reach a fiduciary standard of care? No. Here’s why.
There’s significant question as to whether CFPs can possibly know, from the 29 words in the “Manage Conflicts” provision in the proposed CFP Board standards, what to do. Why?
CFPs whose base experience is brokerage sales and come from a culture that accepts conflicts as part of doing business, have no experience (or an aptitude) for identifying, examining, and mitigating conflicts. (RIAs from an Adviser Act culture are different.)
