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Regulation and Compliance > Federal Regulation

Culture, Not Regulation, Is the Key to Clients’ Best Interest

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For eight years now, the financial advice industry has been grappling alongside regulators to determine what it means to work in the “best interest” of clients and customers. As CEO of the leading alternative investments trade association, I have been intimately involved in this process, meeting with policymakers to help shape effective and informed legislation, listening to retail investors to understand what they truly need — and want — and working with financial advisors, broker-dealers and capital providers to guide our industry down the path of the next decade of customer-centric growth. Now, nearly a decade into this effort, and with the Securities and Exchange Commission in the lead, we are moving closer to finding a workable “best-interest” standard for investors, regulators and financial advisors. But the path forward for the industry must blend this legal standard with a culture that empowers individual investors.

As the SEC closes its comment period for Regulation Best Interest on Tuesday, it’s important to consider why best interest has proven so hard to define.

The SEC has done an admirable job proposing enhancements to the standards of conduct for investment advisers and broker-dealers. The Institute for Portfolio Alternatives will be supporting the commission’s proposed rule, which puts the interest of the retail investors front and center. We welcome a regulatory approach that builds upon and strengthens the existing suitability obligations imposed by the Financial Industry Regulatory Authority. However, the success of the financial advice industry, and any legislative or regulatory initiative, will be measured by our shared ability to establish a trusted and honest relationship with retail investors.

That relationship is highly personal and can’t be effectively prescribed by public policies that are by their nature, impersonal. It’s important that any policy path forward facilitates the SEC’s mandate of investor protection while encouraging retail investor engagement with their professional financial advisors and their ability to make their own, informed investment choices. Any approach that tries to mandate outcomes but fails to empower individual investors will fail.

A sustainable industry model for serving the interests of retail investors must increase investor choice and control over their individual financial goals. I speak to financial advisors and broker-dealers regularly who view one of the principle mandates of their professions as developing their clients’ understanding of various investment options as well as providing them with the tools and confidence they need to make informed investment decisions. After a long career in the financial services and alternative investment industry, I can confidently say that one of our most important responsibilities as an industry is not only to efficiently provide investment opportunities, but also to teach our clients and customers the principles of effective financial planning and portfolio diversification — to build confidence in their ability to make well-informed and personal investment decisions.

This mindset is — and will be — critical to our industry’s future, regardless of eventual policy outcomes in Washington. The ongoing evolution and growth of financial advice and portfolio-diversifying investments requires that we continue to internalize and manifest this customer-centric approach to building trust and delivering value. Culture, not regulatory policy, is ultimately the best prescription.

As president and CEO of the Institute for Portfolio Alternatives, Tony works to bring together key players in the portfolio-diversifying investment industry. He brings more than two decades of experience in financial services.

Prior to joining the Institute for Portfolio Alternatives as CEO, Tony most recently served as the director of capital markets for UDF and president and CEO for FactRight LLC. Tony is a graduate of DePaul University School of Commerce and attended business school at the University of Dallas.


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