August 10, 2010
The suitability standard governing broker-dealers and registered representatives is a robust and heavily enforced standard. The fiduciary standard looks back and enforces breaches retroactively through SEC enforcement or private lawsuits. The suitability standard looks forward and tries to prevent harm to consumers through ongoing and frequent FINRA and broker-dealer audits and compliance processes.
Compliance costs-both in terms of finances and time-are high, and those costs are eventually felt by clients. Adding another layer of regulation means another layer of compliance, and even more cost to clients.
As it stands now, I have am licensed with the series 6 63. I have had and continue to have extensive and ongoing compliance and ethics training for each securities as well as insurance license I hold. Some of the requirements are as often as quarterly. This consumes a significant portion of my time and in my line of work, time is money. As I said, the more layers you add to this the more time and money you take from me and eventually from my clients.
Moving to a fee-only model will not result in better, unbiased advice. In fact, this will make my services unaffordable to 90% of my client base. I work with mostly young adults just starting out in life. They do not have the assets built up yet to absorb the cost of a fee based compensation structure. Therefore, they would most likely not work with a financial advisor and therefore, not be properly saving at all. This would result in fewer Americans being prepared for retirement, educational savings, etc. Consequently, putting an even larger burden on the government.
This proposed fiduciary standard will drive up liability in my profession. It will in turn raise EO costs as well as increasing the overall costs of this profession. Thus amplifying the barriers to entry in this profession and keeping out many qualified professional and lowering the overall quality of service while increasing cost to clients.