More On Legal & Compliance
from The Advisor's Professional Library- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Regulatory Oversight of Investment Advisors Although the regulatory environment is in a state of flux, it is imperative that RIAs adhere to their compliance obligations. To ensure compliance, RIAs and IARs must fully understand what those obligations are.
In addition to badgering me yet again about attaching adjectives such as “genuine,” “authentic,” or “real” to the word fiduciary, John Hawkes raises a very important question about clients’ responsibilities in his comment to my last blog on political realities. Let’s start with the semantic issue first, and then move on to bigger things.
The reason that I and most other proponents of a fiduciary standard for all retail financial advisors feel the need to bolster the terms “fiduciary standard” and “fiduciary duty” with a reference to its authenticity is that its opponents have adopted a strategy of appearing to support a fiduciary standard in principle, and then actively lobbying to water it down to the point of adding no new investor protections at all.
And they seem to be succeeding. Case in point: The Dodd-Frank Act itself includes carve outs for three of the most egregious conflicts of interest in the retail brokerage business: commissions, proprietary products, and failure to have an ongoing duty to the clients. So, yes, to answer John’s question: Many folks are advocating a “false fiduciary standard,” and that’s why we feel the need to continually remind folks that simply calling something “a fiduciary standard” doesn’t make it a genuine fiduciary standard.
Which brings us to John’s second excellent question: “What are the client's responsibilities under such a standard, by the way?” This is exactly the point. Our current broker regulation—and a false fiduciary standard that would perpetuate it—makes the client responsible to decide how important each conflict is, and leaves the broker without any responsibility to act in the best interest of the client. A real fiduciary standard, on the other hand, gives the advisor the responsibility to avoid conflicts of interest when possible, or disclose them when unavoidable, but in either case, to always act in the client’s best interest.
Wall Street seems to be pulling out all the stops to avoid such a standard for its brokers, but you can be sure that if they succeed, they’ll be the first to claim they have adopted a duty as stringent as RIAs.
