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Survey Threatens SIFMA/FSI Fiduciary Positions

May 15
23:31 2012

In a survey released at last month’s fi360 Annual Conference, the desires of rank and file advisers may contradict the stated position of major industry lobbying groups. Blaine Aiken, president of fi360, revealed the results of the 2012 fi360-AdvisorOne/Wealth Fiduciary Standard Survey in his opening remarks at the conference. He began with the results of a different survey from Investnet that asked “What are the reasons for satisfaction of clients with their primary adviser.” That survey, according to Aiken, listed the top two reasons as “trustworthiness” and “the knowledge and quality of the advice they are receiving.” He connected the dots for the audiences, saying these top two reasons are “remarkably similar to the duties of loyalty and the duties of due care,” adding this is “precisely what clients look for is what fiduciaries, by design, are providing.” This investor sentiment, in fact, may explain the trends Aiken mentions next.

Aiken compared this year’s fi360-AdvisorOne/Wealth Fiduciary Standard Survey with last year’s. He said, “If you look at these numbers, it does tell a pretty interesting story… the reliance on fee-only has grown dramatically just in one year… fee-based is certainly up…fee and commission is down and commission is sharply down.” Aiken concludes this is a “reinforcement of the trends that we’re seeing in a broader perspective.”

The bigger news, though, is the evidence for the overwhelming support for the fiduciary standard among all respondents and their firms. Individually, only 7% of the respondents did not provide some form of fiduciary relationship and only 12% of their firms only supported the suitability standard. More so, nearly two-thirds supported a fiduciary standard “no less stringent” that what is currently required for RIAs and slightly more believed adopting such a standard would benefit the credibility of the industry. This contrasts significantly to the fiduciary positions taken by industry lobbying groups SIFMA and FSI. Knut Rostad, President of the Institute for the Fiduciary Standard, told attendees of the fi360 conference SIFMA’s fiduciary “position” (as of April, 2012) includes the objective to “not subject (brokers) to other fiduciary obligations (the Advisers Act fiduciary standard, other statutory standards.)”

“I think it is a very interesting dichotomy,” says Kathleen M. McBride, who coordinated the survey this year as a consultant to fi360, and last year ran the survey when she was editor of She explains, “It is in the long-term best interest of every registered representative, or dual registrant (and they know this) to – as investment advisors by law must – be a fiduciary to their clients. The most evident practical reason, aside from the obvious professional and ethical reasons, is that client acquisition is much harder and more expensive than client retention. How to retain clients? It’s not just golf, but rather, ensuring that you are acting in the client’s best interests, at all times, which minimizes the advisor’s risk rather than giving them more liability exposure.”

But, how does this justify the broad difference in opinion between SIFMA and FSI and its constituent members? McBride, who recently founded the fiduciary consulting firm FiduciaryPath,LLC, and is a founder of the Institute for the Fiduciary Standard, says, “To me it looks like broker-dealer firm executives represented by SIFMA and FSI are thinking short term, where the mere exposure of what clients really are paying when dealing with a broker (when all costs the investor pays – revenue sharing, marketing, fees kicked back to some broker-dealers by some asset managers in return for assets, etc…) look very high versus the asset-based fee paid to investment advisors for fiduciary advice or money management. It is long-term thinking vs. short-term thinking.”

McBride feels we are too far down the road to reverse course when it comes to the fiduciary standard and that, ultimately, the marketplace – without or without regulators – will be the final arbiter. She says, “It is fascinating that banks, broker-dealers and insurance firms are so willing to publicly be anti-investor, anti-consumer. But they may have shot themselves in the foot here, because the fiduciary cat is out of the bag, and investors are beginning to understand the difference between someone who is acting in their best interest at all times vs. selling them something that not only may not be in their best interest but actually may be harmful to them, even if legal, under suitability. There is no going back. Some firm will actually end up leading the pack, getting on board with a true fiduciary offering. Not two hats. Not pretending to be fiduciary and having the investor waive away their right to fiduciary advice – but actually genuinely on board with the authentic fiduciary standard. And they will do well, and the rest will continue to lose share as investors vote with their feet and walk over to the fiduciary side of the business.”

Despite this, there remains a long road yet to travel, particularly when it comes to helping all parties – clients and their service providers – fully understand the meaning of fiduciary. The survey uncovered this, as it asked a series of questions “meant to assess awareness of what is permitted under the ‘40 Act and what is specifically allowable under Section 914 in Dodd-Frank, which does not disallow commission compensation or proprietary products,” says McBride. More than half the respondents felt “receiving commissions and/or recommending proprietary products” were not prohibitive to acting as a fiduciary while, perhaps as way of admission of the greater problem, nearly 75% did not believe “advisors are adequately knowledgeable and trained to practice under the fiduciary standard.”

McBride thinks it was interesting to see so many feel the need for more comprehensive investment fiduciary training (not just sales training). She says, “There was enough lack of real understanding on all sides that it is clear that more training about duties of loyalty and due care of a fiduciary, investment theory, diligence, investment process, avoiding conflicts or managing unavoidable conflicts in the investor’s best interest, controlling expenses and disclosing all costs to the investor.”

Aiken also noted the high level of awareness that “there is a knowledge gap between professional advisers and individual investors just as there is a knowledge gap between doctors and those that are patients. That gap is not something we can expect to be filled without professionals.”

He, however, remains hopeful by concluding there is “certainly a lot of wind at our backs in terms of the promotion of a culture of fiduciary responsibility.”

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About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Stephen Winks
    Stephen Winks May 21, 11:54

    To us as RIAs and consumers it is pretty clear that acting in the best interest of the consumer is universally the right thing to do, yet how do we explain why fiduciary standing of the broker is contraversial ?

    Simple, we are not broker/dealers who have to assume fiduciary liability that never ends on tens of thousands of brokers, each independently rendering advice. Fiduciary standing has never been an issue of whether it was the right thing to do, which is the basis of all good public policy, it is a question of whether professional managers in the brokerage industry can figure out how to make fiduciary standing safe, scalable, easy to execute and manage as a high margin business.

    The brokerage industry (SIFMA and FSI) must dispense with a lot of sacred cows which they will not execute. But the industry will not have to adapt in the best intererst of the investing public because they defacto control the power brokers in Washington.

    How else can we explain the industry not supporting fiduciary standing when (a) it is required by statute (Dodd-Frank) and (b) the industry’s principle regulators (SEC and DOL) have the power to take unilateral action.

    There is no secret that Washington power brokers do not take seriously the two pro-fiduciary lobby Committees–we don’t have any money which translates into influence and campaigne finance that the anti-fiduciary lobby has lots of.

    Doning the right thing which used to be the cornerstone of integrity and public trust has lost its standing in the Halls of Congress and Wall Street.

    We all know what is in the best interest of the investing public–it simply does not matter in Congress. Anyone one on the Financial Services Committee that uses the cop out that “its complex” as an explanation is simply acknowledging that their reasoning can be influenced by money and thus are disqualifies them to serve.

    The secret weapon we have not used is to make it painfully clear to the local electorate of each House and Senate member serving on the Financial Services and related committees that they are literally opposed to protecting the best interest, trust and confidence of the investing public and prefer instead to protect the best interest of the brokerage/banking/insurance industries.

    It will take such a move to break the intransigence of Congress.


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