At TD Ameritrade Conference, Differing Views on Implementing Fiduciary Standard

standard of care study says the SEC has limited resources to keep pace with the growing advisor industry.

"The SEC conducted audits on roughly 9% of the advisors and firms it regulated last year," Tittsworth (left), said. "By contrast, FINRA audits every one of its members every other year."

He then listed a number of steps that could address this issue, including:

• Congress has authorized the SEC's budget to double in the next five years, but again referring to his Capitol Hill experience, he said authorization is not appropriation, and the new congress could kill that measure.
• The Commission could self-fund by keeping more of the money it collects on transaction fees and regulatory fines, but that language was stripped from the Dodd-Frank bill.
• User fees to fund inspections are another possibility, but again that language was stripped from the bill.
• The Commission could decrease the number of advisors it regulates, which will in fact happen as individual states take over the oversight of advisors with assets under management of under $100 million.
• There could also be a self regulatory organization to take on the regulatory task. The language was stripped from the bill, but interpretations of section 914 do in fact allow for its creation.

"We feel the SEC should be that SRO, and we strongly oppose having FINRA in that role," he said to enthusiastic applause for audience members. "They have a lack of accountability, there costs are out of control and they're biased towards the broker-dealer model."

As for next steps, he said it is likely congressional hearings will be held on the matter but could not predict in what time frame. He also believes the SEC will retain control over larger firms and smaller, regional firms will be regulated by FINRA.

Don Trone was the third panelist to speak. He began by relating the story of his son's girlfriend and her graduation from beautician school.

"I asked her if she would immediately begin seeing customers,"  said Trone (left). "She said she could not until a state regulator observed her cutting hair for at least 36 hours. I immediately thought that beauticians and barbers have more stringent training and education requirements than do financial advisors."

The biggest net loser on the fiduciary issue is advisors themselves, he said, because they already have set the fiduciary bar higher than anything that's contained in the bill. The advisors' costs will increase to the point he feels it will require advisors, like family doctors, to roll up into larger firms in order to survive.

"I believe a government mandated fiduciary standard will happen," he said. "You as advisors will be hurt by that because a fiduciary is an aspiration, and it will go from being a privilege the public bestows on us to instead being a right given to brokers."

Trone noted he, too, is opposed to FINRA as the sole SRO for independent advisors because it's "like a baseball umpire officiating a football game. FINRA is rules based, and independent advisors are principles based. They are much too different."

Stark and Stark's Giachetti spoke last.

"Advisors are the bastard stepchildren of the SEC,"  Giachetti said during the session.

By that, he meant that those on the Commission—both on the Commission level and the staff level—don't understand the business models of RIAs who advise individual clients. As for the SEC's SRO report, Giachetti (left) said he believed the best solution would be to create an entirely new self-regulatory organization to oversee all fiduciary advisors.