It's my observation that many advisors have concerns about the "fiduciary standard" that in one form or another appears to be a fait accompli in the looming reregulation of financial services on Capitol Hill. This less-than-sanguine group appears to comprise primarily registered reps, who until now have been wrapped in the safety of compliance rules handed down by their broker/dealers' compliance departments.
The new reality of having to make–and stand by–their own determinations of what's in the clients' best interest is understandably troubling to them. One advisor recently put it this way in an e-mail: "Now we have the idea of a fiduciary standard, a subject to which many leaders are passionately devoted, but the passion is directed toward an intangible, undefined, out-of-control concept that cannot and will not be defined in a tangible manner."
As you can see, there's considerable emotion involved in this issue. Before we give in to complete panic, let's take a deep breath, and see if we can put the fiduciary issue in a more realistic perspective, one that turns out to be way more optimistic than doom and gloom.
Contrary to the implication of the above e-mail–and the belief of many RR advisors–the fiduciary standard under consideration in Washington is not a new concept. In fact the Investment Advisers Act of 1940 (yes, that's 70 years ago) established a duty for RIAs to put the interests of their clients first. The only reason that registered reps haven't had that same duty in the intervening years is because the so-called "broker exemption" specifically excluded RRs from such a duty. It seems as if the securities industry lobby was just as powerful then as it is today.
The point is that RIAs have been operating quite successfully, and seemingly unmolested, for nearly three-quarters century under the obligations of a fiduciary duty. In fact, they've been so successful in competing for client assets in the past 20 years that Wall Street retail brokers haves largely adopted the RIA business model: providing investment advice on managed client portfolios for fee compensation. But even though registered reps are now doing business like RIAs, they still balk at accepting the same duties and responsibilities as RIAs. The reregulation will likely end this discrepancy.
What's more, the notion that the RIA fiduciary duty has somehow skated through the past 70 years as "an intangible, undefined, out-of-control concept" couldn't be further from the truth. There are many sources today that provide RIAs with all the legal know-how they need to do the right thing by their clients and stay out of fiduciary jail, including compliance attorneys, compliance consultants, and organizations such as Fiduciary 360. In fact, last year a number of the leading lights in the RIA fiduciary duty area formed the Committee for the Fiduciary Standard (http://www.investmentadvisor.com/News/2009/8/Pages/Committee-WM-Talk-Standards-With-SEC-Commissioners.aspx?k=committee+for+the+fiduciary+standard) to help nudge the current rereg in the right direction. Their "Five Core Principles" for an advisor's fiduciary duty are simple, concise, and undeniably in the best interest of advisory clients:
