August 24, 2010
While I believe registered reps are already acting in the "best interest" of their clients, the Act does not define what the rules are for compliance with a legal "best interest" standard - thus subjecting registered representatives to the potential of never ending lawsuits.
For example, is "best" the cheapest product? Will I need to sell only no load funds to be cheapest (and NOT get compensated by commission)? Is cheapest defined as the first year costs or costs over a period of years (which can't be accurately calculated). Wouldn't that require me to charge fees that clients don't now have to pay? If I charge fees wouldn't I then need to be an RIA? Wouldn't that increase my EO costs and cost of doing business requiring me to charge even more fees?
Or, is it the "best" premium relative to the benefit of the product? The product with the "best" historic underwriting and service standards? Is it the one from the carrier with the "best" rating? The fiduciary standard in essence adds a vague legal liability standard that looks back (sometimes after many years) and is enforced after the fact by the SEC or trial lawyers who have perfect vision in hindsight.
Shouldn't clients be allowed the CHOICE of paying fees or working with a commissioned representative? Under a commission structure the client incurs NO costs unless they are satisfied with the work done by the rep. and decide to purchase the product. With fees they will need to pay for the rep's work even if they are not satisfied.
Shouldn't clients be given the CHOICE?
Currently fee based reps primarily charge for ADVICE, commission based reps are paid for providing a PRODUCT.
There is a big difference between providing intangible advice for a fee and an actual product for commission.
When a client hires and pays an advisor for his advice he should expect that the advisor is acting only in the clients best interest, since he has paid for that service.
When a client chooses not to pay a fee and asks for UNPAID advice he should NOT expect the advisor to be his fiduciary.
This would seem to be similar to a patient paying his Doctor for medical advice (fiduciary arrangement) vs. going on-line and asking for free medical advice (non-fiduciary).
The client should have free CHOICE to decide how he wants to get his advice and the advisor should make it clear when he is not acting in a fiduciary capacity.
Why would it ever be necessary to limit the consumers CHOICE by requiring only fiduciary relationships??