I recently read an article in which SEC Commission Gallagher stated that he is not convinced that a universal fiduciary standard is needed. He also stated that he needed to see more evidence of the need for such a standard.
Commissioner Gallagher, perhaps you should read all the studied that the SEC has conducted and contact both the SEC’s and FINRA’s enforcement divisions. Everyone knows why the SEC is dragging its feet on this issue despite the clear need for same and your own agency’s recommendation for a universal fiduciary standard to protect investors. (See Financial Planning Association v. Securities Exchange Commission, where court ordered SEC to enforce the related RIA law against broker-dealers)
The Department of Labor’s pending fiduciary revisions and the SEC’s stall tactics provide an incredible opportunity for investment advisers, who are already subject to a fiduciary standard. Prudent investment advisers will focus their marketing on the inequitable dual standard that currently exists and the dangers that result from same.
As both a former securities compliance director and an RIA compliance director for major broker-dealers, I believe that most advisors, both brokers and investment advisers, are honest and truly want to help their customers. For these advisers, a universal fiduciary standard is a non-issue, as they already conduct their practices under the fiduciary “best interests” standard.
The financial services industry continues to put up disingenuous arguments, most notably the “increased costs” and the “lack of access to advisers” arguments. Yet, according to the SEC, the industry did not produce much evidence when the SEC requested information to support the “costs” claim.
They did not produce such evidence because the claim is a ruse. Since the NASD release Notice to Member 94-44 and the emergence of the RIA sector, most broker-dealers have created their own proprietary RIA. Consequently, they should already be reviewing such trades under the fiduciary “best interests” standard, especially since FINRA has stated unequivocally that all brokers and are required to always act in a customer’s best interests. So, the industry’s “increased cost” is either a complete ruse, or the industry’s “cost” claim is an admission against interest, an admission that they are not, and have not been, acting in compliance with FINRA’s compliance rules.
The financial service industry claims that a universal fiduciary standard will result in fewer advisers willing to work with investors, including pension plan participants. In a court of law, this argument would be tossed as purely speculative. The industry has introduced no evidence to support their contentions.
Advisers who are not willing to put a customer’s best interests first may well reduce their activity. However, that would simply provide more opportunities for the majority of brokers and investment advisers who do operate honest and ethical practices and would be glad to provide investors with valuable and objective advice. To be honest, the public would be better served by the loss of the ne’er-do-well, dishonest advisers.
In my opinion, it is highly unlikely that the SEC will adopt a universal fiduciary standard soon, if ever. This present a unique marketing opportunity for independent RIA firms. Proprietary broker-dealer RIA firms and RIA firms with dually registered members are not going to be allowed to seize this opportunity, for obvious reasons. This simply increases the opportunity for independent RIA firms.
I liken the current opportunity to the well-known quote attributed (falsely) to Nathan Bedford Forrest, a lieutenant general in the Confederate Army, “get there firstest with the mostest.” (According to the New York Times, he actually said “Ma’am, I got there first with the most men.”) The current situation presents an obvious opportunity for RIAs to create a personal “WOW” value factor by educating the public about the fiduciary/non-fiduciary situation and the implications for their personal financial well-being.