NEW YORK, June 25 (Reuters) - For financial advisers, the hot-button topic of the latest financial regulatory reform is, what constitutes financial advice.
Under current rules, investment advisers are legally bound to put their clients’ interests first, known as the fiduciary standard. By contrast, brokers can make recommendations to clients as long as they are “suitable.”
Regulatory legislation hammered out on Friday instructs the Securities and Exchange Commission to study the differences and decide if it wants to impose the fiduciary standard.
Representatives from major brokerage companies did not respond to an email request for comment, with the exception of Morgan Stanley Smith Barney.
Below is a roundup of views from investment advisers, most of whom are independent, about the fiduciary standard along with other parts of the reform bill. CHRISTOPHER WADDELL, CERTIFIED FINANCIAL PLANNER AND MANAGING PRINCIPAL AT THE WADDELL GROUP IN VIENNA, VIRGINIA, AN AFFILIATE OF RAYMOND JAMES
“While it’s unfortunate that there isn’t a uniform standard, nobody said life was fair. Because a different standard is so illogical, it has been difficult for the RIA (registered investment adviser) firms and CFP’s to make use out of this competitive advantage. When we explain the difference to potential clients, they have a hard time understanding why everyone isn’t held to the same standard.
“From a marketing standpoint, it’s like the old ads for Hebrew National Hotdogs. ‘We’re Kosher. We’re held to an even higher authority.’ But many of the public still think we’re all just hotdogs.” HAROLD “RICK” PITCAIRN, CHIEF INVESTMENT OFFICER OF MULTI-FAMILY OFFICE PITCAIRN IN JENKINTOWN, PENNSYLVANIA
“The element of fiduciary responsibility in the financial reform bill sounds like it is nothing more than a last-minute compromise created by a committee in need of finishing its work.
“If the SEC decides to impose a fiduciary standard on the broker-dealer community, we can only hope it is both strict and enforceable and achieves the real goal of putting client interests ahead of those of the broker-dealers.” GEORGE PAPADOPOULOS, CERTIFIED PUBLIC ACCOUNTANT AND NAPFA-REGISTERED FINANCIAL ADVISER IN NOVI, MICHIGAN (NAPFA is the National Association of Personal Financial Advisors.)
“I was quoted in an industry publication when Mary Schapiro came aboard the SEC that she is not to be trusted to do the right thing. I would like to reiterate that I still do not trust her to impose the fiduciary duty on brokers!
“I am also pretty certain that it will take a lot longer than six months to conduct the study and then I expect somehow Wall Street to again evade this responsibility.
“If this opportunity is missed after the incredible damage Wall Street firms did to our economy, you start to wonder if we will ever see meaningful reform again come to Wall Street. STEVEN MEDLAND, CERTIFIED FINANCIAL PLANNER AND PARTNER AT TABR CAPITAL MANAGEMENT LLC IN ORANGE, CALIFORNIA
“I am a fee-only adviser, registered with the SEC. I am an acknowledged fiduciary and fully support a fiduciary standard for anyone who’s giving financial advice. However, I don’t understand how someone can be a fiduciary when they are working on commission and selling proprietary products.
“It’s like making a car salesman a fiduciary. If the Toyota salesman is a fiduciary and required to put his customers’ interests first, wouldn’t he be required to tell them about the comparable, lower-priced Ford, if it was a better fit for their needs?” JIM WIGGINS, SPOKESMAN FOR MORGAN STANLEY SMITH BARNEY”
“Morgan Stanley Smith Barney is aligned with the position articulated by SIFMA (Securities Industry and Financial Markets Association) on this -- which is that we support development of a new national standard of fiduciary care that would apply uniformly to everyone who provides personalized financial advice.
“It is important that this standard be constructed in such a way as to not deprive our clients of products and services they want to receive, such as IPOs and access to our substantial bond inventory, for example.
“Most of our financial advisers already operate under the existing fiduciary standard of the (Investment Company Act of 1940) when providing advisory services -- e.g. either discretionary or non-discretionary managed accounts.” KARL MILLS, PARTNER AT JURIKA, MILLS & KEIFER, AN INVESTMENT ADVISORY FIRM IN OAKLAND, CALIFORNIA
“For advisers, it’s absolutely important to have a fiduciary standard. It aligns the interest of the adviser with the investor. It removes some of the overhang that clouds the banks and the rest of the financial services sector. But it’s not going to prevent the next crisis. The real risk to the economy is the overall amount of debt on the public balance sheet right now.” CHIP WORKMAN, CERTIFIED FINANCIAL PLANNER AT THE ASSET ADVISORY GROUP IN CINCINNATI
“The fiduciary standard simply states that if you accept money from a client in exchange for your advice on a financial matter, that advice should be given with that client’s best interest in mind first and foremost. Why this hasn’t been the standard since the beginning is beyond the average fiduciary adviser.
“There’s a broad belief that a simple inclusion of this standard in the industry would be all the reform the industry would need. You could (shred) the other thousands of pages.
“Unfortunately, it is likely that this 6-month study period will be an opportunity for a powerful anti-fiduciary lobby to water down a very simple concept to the point of ineffectiveness at the expense of their clients. JAY HUTCHINS, CERTIFIED FINANCIAL PLANNER AT THE WEALTH CONSERVATORY
“There really is no need for the SEC to study the issue; and the tactic is nothing other than the capitulation of politicians to the influence of financially powerful insurance and securities brokerage interests.
“What is needed in any event is not regulation that conflicts with the primary duty of salespeople to further their employers’ interests, and which deprives consumers of a choice between buying product and hiring an adviser, but education which empowers them to make conscious and informed choices between the two. MARILYN CAPELLI DIMITROFF, PRESIDENT OF CAPELLI FINANCIAL SERVICES IN BLOOMFIELD HILLS, MICHIGAN
“We commend the House and Senate conference committees for laying the foundation for consumer protection by allowing the SEC to impose the highest level of care for anybody who provides financial advice. The discussion of the importance of the true fiduciary standard wasn’t part of our national financial discussion a few years ago, but it has become part of discussion.
“Along with authority to create regulation comes the authority to enforce regulation. We are confident that will occur. But we are a bit disappointed that the authority to regulate equity indexed annuities by the SEC appears to have been removed. That’s unfortunate because equity indexed annuities are part of what often is a practice that targets elderly. NIGEL TAYLOR, CERTIFIED FINANCIAL PLANNER AT TAYLOR & ASSOCIATES IN SANTA MONICA, CALIFORNIA.
“The proposed changes are far too complex and overly burdensome. We need to educate politicians that there is a huge difference between “investment advice” and “financial planning”, that the provision of such advice can be mutually exclusive, and that there is an urgent and compelling need to ensure the consumer’s interests are best served when people who hold out as ‘financial planners’ or use specious designations and claim expertise in financial planning subject areas offer such advice in a “fiduciary” capacity under the direct supervision of a state agency.
“The provision of competent financial planning services is not synonymous with advice offered as to the value of investing in regulated securities. It is this decoupling of investment advisory services from the provision of financial planning services in the minds of legislators that is of paramount importance. Without this decoupling, there will be little chance of success at any level to establish a bona fide profession.” LYNN BALLOU, CFP OF BALLOU PLUM WEALTH ADVISORS IN LAFAYETTE, CALIFORNIA
“Since the drop in the market in 2008, investors have become suspicious of the safety of our markets and, therefore, fearful. And that’s bad because they are making long term investment decisions from places of fear instead of logic, research and forward thinking.
“This is exacerbating the market volatility we are experiencing and also causing great harm to hard working investors whose futures depend on our ability to live in fair and open markets.
“Congress needs to spend time thinking about all the players in the market and how they can engage in unsafe business practices. Then they need to craft well thought out, comprehensive rules of engagement that prevent irresponsible behavior that can lead to market and financial collapses,
“Those of us who run our practices ethically are not concerned about implementation of high fiduciary standard requirements for our practices, as we already operate that way.” (By Lauren Young, Wealth Management Editor; editing by Carol Bishopric)
Our Standards: The Thomson Reuters Trust Principles.