Follow-Up on Fiduciaries

Michael Sandifer raised some interesting points in his October letter. Acting like a fiduciary and agreeing in writing to serve in a fiduciary capacity are two entirely different things. As anyone who's taken the time to read a standard brokerage agreement knows most such agreements require the customer to forfeit his/her ability to sue and force any dispute short of outright fraud into arbitration. This is an escape hatch that simply isn't available to those serving in a fiduciary capacity. The contention that the regulatory and licensing environment of the brokerage industry is equivalent to a fiduciary standard of care is specious at best.

Interestingly, neither the brokerage industry nor their lobbying arm (Securities Industry Association) make the case that a broker's suitability standard of care is a higher standard than a fiduciary standard of care. The FPA's efforts as it pertains to the Merrill rule aren't about determining what constitutes a "true advisor." It is an attempt to hold all financial professionals providing "advice" (as defined under the 1940 Act) to one uniform standard of care. How can anyone argue that applying a lower standard of care better serves the investing public?

Michael H. Palmer, CFP