August 18, 2010
I am both a registerd representative for a broker dealer and an Investment advisor representative for an RIA as well as a CFP certificant. I have been in the financial services industry for nearly 15 years. Because of my licensing and IAR status I am already under the fiduciary standard and have considerable experience under both systems of regulation.
I believe that there needs to be regulation of all who engage in giving advice to the public on financial matters, and that the needs and best interest of the client should be paramount. I do not believe, however, that simply imposing the fiduciary standard on registered representatives and broker dealers will have a significant impact on the viability and value of the advise given.
There are certainly numerous examples of wrong doing and illegal activity of individuals under both systems of regualtion that are currently in place. Neither the fiduciary standard nor the suitabilily standard have or will prevent crooks from being crooks.
A better approach is to require anyone who wants to call themselves a Financial Planner or Financial Advisor to have the proper training and credentials to be qualified to do the job. An individual cannot call him/herself a doctor without going through med school and an intership and passing the appropriate exams. The same applies to a lawyer. Likewise, if you want to call yourself a financial planner you should have to meet the education and training requirements to earn the right. Even this will not prevent crooks from being crooks.
There are many individuals that are currently under the suitability standard that I would have no qualms about referring my mother to, because they are trustworthly, compentent individuals. Likewise for many individuals that are currently under the fiduciary standard. Conversely, there are a minority of individuals that I would like to see booted out of the financial services business regardless of what standard they are under.
I fear that simply imposing the fiduciary standard on broker dealers and their representatives will have a negative impact on many individual investors. The smaller investors will be left out in the cold. As a truly qualified financial planner and a business owner, I cannot afford to deal with small investors (under $50,000) because I loose money on them. That's reality
The fiduciary standard did not prevent Bernie Madoff or the many other perpitrators of ponzi schemes from doing what they did. However, allegations and information that was not followed up on at least in the Madoff case allowed it to continue for many years. It was the inaction of those charged with protecting the public that magnified the problem, thereby hurting many more people than necessary. Another layer of buricatic compliance will not improve the situation.