August 24, 2010
The suitability standard governing broker-dealers and registered representatives is a robust and heavily enforced standard.
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.
I hold insurance and registered representative licenses that allow me to advise and direct the public in planning for retirement and estate issues. I have a CLU, ChFC designation that required several years of advanced study, much of it involviong ethics. I see no reason to hold us to a fiduciary standard instead of the one that is currently utilized. This adds another layer to the cost of the product and creates ineffeciencies that are to numerous to mention. I study to achieve at a minimum 24 hours of insurance continuing education per 2 year period, in addition I must meet a 10 year CE and FINRA compliant curriculum every 12 month period, on a calendar basis.
The current situation allows for several layers of consumer protection. How would the fiduciary standard have prevented the Madoff scandal?
The current compliance standards allow me to work with my clients adequately without the fear of litigation leading to a lack of advisory input.
That being said the fiduciary standard would lead to another layer of costs that can only be borne by those most in need of held, the client and consumer, adding another layer of cost leads to the unitended consequence of burdening those it was intended to help.
This will also cause a reduction in advisors to help the clients due to their unwillingness to expose themselves to the problems inherent to such an approach?
Moving to a fee only approach does not help, as they can charge a fee for periods when the market can provide no return through no fault of any of the parties involved?
Can your clients afford to pay up front fees or will they be willing to?
To summarize, by implementing the fiducary standard you will be limited the pool of professionals to advise the public and may ultimately lead to a different problem by consolidating the advice into the hands of but a few, with the resultant outcome being disastrous for the public at large, through the result of decisions made that are designed to protect the advisor, by not advising and not protect and enable the public to participate in investment programs that are adequate for the individual client.