The topic of this blog entry may initially seem pertinent only to those within the financial services profession. The reality is quite the opposite. Efforts to create a uniform fiduciary standard are perhaps most significant to the clients, the people who entrust financial professionals to oversee their nest eggs and help make decisions which put people on a forward path to progress in their personal financial lives. The concept of a fiduciary standard basically requires all of those ambiguous financial professionals (most of whom hold themselves out as ‘planners’ and ‘advisors’ to act in the best interests of their clients, a standard which is currently only required for investment advisor representatives, typically abbreviated as IARs. The way the law currently stands stockbrokers (aka registered representatives) are only required to act within a standard of ‘suitability’ when it comes to recommending products and strategies to clients. I don’t think I need to elaborate on the potential for abuses which exist within the ambiguous definition of ‘suitable.’
The SEC believes the implementation of a fiduciary standard is important because the average investor hasn’t a clue about the various roles played by broker/dealer firms and investment advisors. I see it first hand on a regular basis in my own practice. The few clients who do ask specific questions about my professional credentials typically lose interest after I explain my dual registration as both a broker and investment advisor. The issue of wearing multiple hats is confusing to clients, as it is to some advisors as well.
Because a fiduciary standard already exists for investment advisors the compliance requirements for those professionals is clear. The trickier issues tend to come up with brokers who, accidentally or not, frequently impart investment advice to clients without properly disclosing that they aren’t held to the same rigorous compliance requirements. The fact that brokers need only make ‘suitable’ recommendations—that is recommendations which work within the framework of a client’s tolerance for risk and investment objectives—leads to much debate about how compensation (commissions) may direct an advisor’s decision-making rather than product costs, transparency, tax efficiency or any other factors which an advisor should be giving consideration to when choosing a product or strategy. The conflict of interest is clear and the flexibility of how brokers choose to deal with that is something regulators probably want to eliminate.
Adopting a uniform fiduciary standard seems almost too obvious in a world where too many financial professionals are greedy and the typical consumer desperately needs solid, sound financial advice to navigate through the intensely complex financial decisions which we all deal with throughout our lives. It seems to me that implementing such a standard would be beneficial to every party involved ranging from the consumers to the financial professionals to the regulators and compliance personnel who constantly deal with ambiguity and uncertainty when it comes to monitoring the behavior of financial professionals. So for me, assuming the implementation of such a standard can be done in a smooth fashion which isn’t too disruptive to everyday business, I’m all for it.
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.