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Exclusive Interview: Knut Rostad says Fiduciary Debate “80% Political”; Advocates Out-Lobbied by Wall Street Opponents

September 23
00:01 2014

Knut A. Rostad immediately struck me as someone who “gets it” in terms of what it means to be a fiduciary when I first met him at an fi360 conference a few years back. Unlike many voices in this debate, Knut is one of those rare birds that knows Knut_Rostad_300the history of fiduciary and trust law and understands its significance on the real meaning of the Fiduciary Standard. He co-founded and chaired the Committee for the Fiduciary Standard and co-founded and is president of the Institute for the Fiduciary Standard, a non-profit formed in 2011 to advance the fiduciary standard through research, education and advocacy. He is the regulatory and compliance officer at Rembert Pendleton Jackson, a registered investment adviser in Falls Church, Virginia. In 2014, Knut was named to Investment Adviser Magazine named Knit to its ‘IA 25’ list, which it calls “our annual list of the most influential people in and around the advisor industry.”

Knut has authored numerous articles, papers and regulatory comment letters. For more information visit the Institute at: He is the editor of The Man in the Arena: Vanguard Founder John C. Bogle and His Lifelong Battle to Serve Investors First, published by Wiley in December 2013. He is also a contributing editor at AdvisorOne; speaks frequently at industry conferences on fiduciary and compliance issues; and is regularly cited in media national and industry outlets.

With this being “Fiduciary September,” and coming fresh off of the annual Fiduciary Leadership Summit in Washington, D.C., we felt it would be appropriate to Knut’s measure of things within the fiduciary realm.

FN: Knut, you’ve been an ardent advocate for the Fiduciary Standard for quite some time. You certainly have a deep knowledge of the history of laws pertaining to Investment Advisers (hence, the concept of “fiduciary”) and you’re always out front and center preaching of the benefits of the fiduciary standard. When did you first feel the need to take on this mission and what in your background prepared you for this?
Rostad: Advocating for fiduciary principles involves both policy and politics. The current logjam in regulatory rulemaking at both agencies [the SEC and the DOL] fits the 80/20 rule: Its 80% political issues; 20% policy issues. Whereby, just a very small part of the reason for not proceeding is based on genuine differences of opinions based on the merits of the issues. The bulk of the logjam is based on political considerations of both the Congress and the Administration. To this challenge I may come with a somewhat different professional background as compared to my colleagues. My background is not the insurance or securities industry or the Hill, but working in non-profit advocacy and in business. I’ve been in compliance for ten years and around the fiduciary issue for just a few more (so I am a relative newbie compared to many others.) Also, I come with a politically conservative heritage, so I may look at these issues a little differently than my politically liberal colleagues. I may take greater note when conservative pundits such as George Will or Peggy Noonan, or conservative members of Congress or conservative activists express criticisms with Wall Street. Or, for example, when a judge appointed by George W. Bush scolds Goldman Sachs for calling its public pronouncement to put client interests first, “puffery.”

FN: You’ve recently written a piece lamenting the state of the fight for the fiduciary standard. In it you explain how the industry giants have out-lobbied the pro-fiduciary crowd. Why do you think they’re so afraid of the fiduciary standard and, despite the obvious advantages to investor (we earlier interviewed The Consumer Federation of America’s Babara Roper about her group’s support for the Fiduciary Standard), why have these anti-fiduciary lobbyists been so effective?
Rostad: Too often, the conversation about Wall Street lobbying stops when someone remarks about the resources Wall Street brings to the battle. This is mistake, because this is where the conversation should begin. It’s not so much that the fiduciary groups have been out-lobbied (which we have); it’s more that we have been out strategized. That’s different.

FN: To what extent has the investing public – other than from people like Roper – been involved in this debate? What do they think about the industry as a whole and why do they think it? How can adopting the Fiduciary Standard help quell the public’s current attitude concerning the industry?
Rostad: The investing public seems to have been largely left out of this discussion. There are some reasons this is understandable, but this is no excuse for fiduciary advocates not doing more making this discussion more accessible to investors. Not doing so has cost us. The combined impact of the accumulated anger and distrust with Wall Street, and financial institutions and financial services generally has had an impact. Clearly, its key sources are largely not of our making, but its impact has seeped into investor perception of advisors and brokers and, by in large, the advice industry has not appeared to be taking it seriously. The great exception here is CFA Institute which is to be commended for recognizing the problem and executing a strategy to address it.

FN: It’s been stated by anti-Fiduciary Standard lobbyists that enforcing the Fiduciary Standard across the board would harm smaller investors. Setting aside for a moment there’s no evidence to support this (after all, smaller investors are already being served by fiduciaries), why or why not would you be in favor of a “compromise” whereby the fiduciary standard would apply to “large” (whatever that means) accounts while smaller accounts could continue to opt not to have the greater protection of the Fiduciary Standard umbrella? Why or why not do you think those opposed to the Fiduciary Standard would agree to this compromise?
Rostad: The stated arguments against applying a true Fiduciary Standard across the board are, at their best, fictional, in nature. They are disconnected to the reality of the vast choices available to smaller investors. These arguments only make sense if you understand they exist to protect the markets for the higher priced service providers who would suffer under an enforced Fiduciary Standard. As I noted in a blog in May. “Recently, Raymond James president Scott Curtis called his brokers to action to “oppose the Department of Labor’s fiduciary proposal.” He did much more, though, when he went off message and essentially acknowledged that his concern with the proposed DOL rule is not about investor choice, but industry survival, when he is quoted saying, “We don’t think this is healthy for the industry.”

I think a proposal to exempt smaller investors from the fiduciary standard is a terrible idea. It has no merit I can think of but to perpetuate the fiction noted above that advisers, advisors, or brokers can only afford to serve clients if they breach their fiduciary duty.

FN: You’ve said, “Fiduciary advisors must reclaim their proud heritage and state in the clearest possible terms, in the public square, what fiduciary advice means for investors, and how brokerage lobbyists so misunderstand it.” When you say “clearest possible terms,” what specifically do you mean? Can you give an example? Also, regarding “in the public square,” what do you have in mind there?
Rostad: We have to return to the basics of blocking and tackling and clearly remind investors of the comparative advantage of working with a true fiduciary adviser over a sales broker. This is a challenge, yes, but it is neither complicated nor overwhelming. As an industry which aspires to be a profession, if we can’t (or won’t) do this, we should close up shop and go home, because if we can’t explain to investors how they benefit from fiduciary advice, frankly, we don’t deserve their confidence, much less their business.

FN: One of the greatest misconceptions regarding the Fiduciary Standard is that brokers – who are essentially sales reps – and investment advisers – who are essentially consultants – provide the same type of service. Contrary to what many, including policy makers and regulators, believe, the two offer very different services. Tell us more about this difference, why it’s significant, and why so many smart people just don’t get it.
Rostad: You are absolutely right, these differences are huge and the misconceptions about them are central to our challenge. I think the starting point is assessing “why” we have such a hard time communicating the differences. A key factor, a factor I do not hear much discussed, is that we are almost always playing on the other side’s home field, and they have used this home field advantage very well. Until we address this factor we will continue to lose ground.

FN: Tell us about “Fiduciary September.” What inspired you to come up with this idea? What kind of response have you gotten so far? What are some of the things you’ve done or you’re planning to do this year?
Rostad: Fiduciary September was inspired by September 17th – Constitution Day. On this day we commemorate the adoption of the Constitution, which is the foundation of America as a self-governing nation. It is an expression of what we, as a people, believe is important and the rules we created to govern us. The role and importance of fiduciary principles parallels the importance of our constitutional principles and deserves, in my view, similar attention and following. This is what we have tried to do during Fiduciary September. We wish to remind Americans why fiduciary principles matter – not only to investors, to whom the principles matter enormously – but as the principles on which our government, our economy and our markets depend on to flourish.

FN: Knut, thanks for your excellent words! You’ve given the readers plenty to chew on. Thanks for taking the time from your busy schedule and we wish you the best on another successful Fiduciary September.

Christopher Carosa, author of 401(k) Fiduciary Solutions, will be speaking at CFDD ’14 on the subject of “Using Proven Psychological Techniques to Motivate Plan Sponsors & Participants to Implement Your Recommendations.” The session will feature a rarely used presentation and feature tools mentioned in his new book Hey! What’s My Number? – The One Thing Every Retirement Investor Wants and Needs to Know!



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Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Edward Hinds
    Edward Hinds September 24, 10:57

    I do have several concerns. One, why not have disclosure instead, where the investor is notified that the interactions are governed by either fiduciary standards or commercial standards? Two, in cases where a firm represents parties on both sides of the transaction who gets the fiduciary standard, since one or the other is making a mistake? When taking a company public who gets the fiduciary standard? I really don’t see how we can have a fiduciary standard across the board.
    Thank you,

  2. Christopher Carosa, CTFA
    Christopher Carosa, CTFA Author September 24, 11:15

    Ed: Great points. From my speaking with people across the country and academics who study the field, it is clear there is a conundrum. Your comments bring to bear exactly these issues. For example, there’s a consensus among academics that disclosure doesn’t work. However, that’s not the same as saying, as you suggest, agreements can’t state precisely what type of relationship the client is entering in. I think many people would agree that stating that relationship up front is a major step in the right direction. Your comment on dual registration really gets to the hub of the matter. In fact, I believe if it weren’t for dual registration, we wouldn’t be having this debate at all. Dual registration has confused not only the consumer, but the industry as well. Brokerage and Advice are two entirely different business models. They used to be clearly delineated. Now they’re often commingled in a conflicting manner. Untangling this commingling is really what’s needed, but many believe “the genie is out of the bottle” and the SEC will never reverse its decision to allow dual registration.

  3. Dennis Myhre
    Dennis Myhre September 24, 14:40

    Knut Rostad definitely has”Viking blood” flowing through his veins…. his comments, though somewhat muted, identify the problem that exists within the SEC and DOL. I do believe, however, that he is being generous with his 80-20 remarks…. the SEC is 100% political, and will continue to be as long as our bi-partisan leadership team up to support the “mis-information” being distributed by the financial industry.

    Only by educating the 401k investor will the system change. Educating does not mean providing data and education materials that no common investor understands or cares about. We need to expose the corporate misfits that have stolen from the pockets of millions of innocent investors.

    A fellow “Viking,”

    Dennis Myhre, AIC

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