In the comments that he's posted to this blog (for example, in this blog posting , Steve Winks raises some important issues that warrant further discussion. I've known Steve since he was a due diligence officer at a financial planning B/D in Atlanta in the '80s, and in more recent years I've heard him articulate his analysis of the implications for a fiduciary duty, much of which he's been kind enough to share with us in his postings.
Steve does an excellent job of capturing the concerns that I've heard many registered reps express about the impending financial services regulation, particularly regarding the extension of a fiduciary duty to all financial advisors. Steve, like the many RRs he's worked with over the years, comes from a brokerage environment, in which FINRA and then the B/Ds' compliance departments lay down clear, concrete rules for the activities of their reps: which Series licenses they have to hold to conduct specific types of business, what disclosures they need to make to their clients, how to determine which products are suitable for which clients, and even what they can say about those products, etc. etc. Virtually every aspect of an RR's business day is covered by some rule or regulation for the appropriate conduct.
As you can imagine, such a tightly controlled working environment also creates an overall sense of comfort and safety: play by the rules and no matter what happens to your clients' portfolios, or what claims they might make against you, you and your firm won't be held responsible. That's not to say registered reps don't care about the well-being of their clients--most of the RRs that I know do care. It's a system that enables them to sell financial products secure in the knowledge that they've done what they're supposed to do, and no one can say otherwise, regardless of the ultimate outcome of any transaction. Who would want to give that up?
Unfortunately, it's also a system that's based on an illusion. For should a registered reps' actions ever be called into question, the matter isn't resolved by a jury of laypeople, or even an elected judge--it's referred to a securities industry arbitration panel, whose job is to determine whether the rep in question broke the rules, not whether the client was treated fairly. These securities industry rules--the ones that create such a comfortable safe harbor for registered reps everywhere--are never called into question. The rules themselves are never subjected to a judicial review of whether the client's rights or interests were violated.
I don't have any factual basis for this, but it's my suspicion that if arbitration cases went instead to a real court of law, the brokers would lose a lot more of those cases. And that, if you read between the lines of Steve Winks' postings, is what RRs are really afraid of. Steve attempts to solve this problem by calling for "hundreds of rules and regulations" that would recreate the current rules-based system to tell advisors exactly what they need to do. But it doesn't work that way in the real world: most of us don't have a set of rules we abide by. We have principles that we live by, that mostly boil down to "do the right thing:" don't steal, don't cheat, do what you say you'll do, and don't kill or maim. It's not really that complicated. If a true fiduciary duty is imposed on all advisors, they'll be subject for the first time to all the judgment calls that the rest of us make every day. Scary? I'm sure. The end of civilization as we know it? Probably not.
