August 25, 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 going to be felt by clients. Adding another layer of regulation means another layer of compliance, and even more cost to clients.
1. I hold licenses in three areas Life, Health and Variable product.Each year we are mandated to go through continuing education on all lines. We are also mandated to take continuing education from our broker dealer that includes customer relations and making sure that the products we sell to our clients are suitable for them. All that we learn and adhere to is based on client suitability. I spend a great deal of time on compliance issues already and adding an additional layer would only add to the already over regulated industry we are facing now not to mention the additional litigous actions that will follow unnecessarily.
If I am held to a fuducairy standard in addition to all of the other standrads that we are currently under this will cause me and my firm to raise prices to the consumers we service. These are the same consumers you are trying to protect. No one has a crystal ball when it comes to investing. We apply our expertise and education to all of the advice we give and to the products we sell. No one knows exactly how the economy will run nor how the market reacts to varying outside influences. If I have to go to a fee based system in order to afford the additional burden then most of my clients will not be able to afford what they are currently doing now and subsequently will stop all together investing in their future and put greater burden on the government for support. You will be opening up a Pandora's Box of litigation everytime an investor loses money in the market. You would then be forcing us as Registered Representatives to sell guaranteed products only. Then you would have to ask the question, could the consumer come back and sue us for not putting them into the market when the market went up and did more than the guarantee? In essence you would be forcing us to sell only products that had "some" upside advantage and a guarantee that it would not ever lose money. What then would happen to the market overall and to the economics of the country? We played a leading role in working with Senators Tim Johnson (D-SD) and Mike Crapo (R-ID) to include the SEC study in the recently-passed Dodd-Frank Wall Street Reform and Consumer Protection Act. The purpose of the study is for the SEC to conduct the first ever comprehensive analysis of the regulatory environment governing broker-dealers and investment advisers and to determine if any regulatory gaps or overlaps exist that are harmful to consumers. Without the study, Congress was set to move forward with imposing a legal fiduciary duty on all broker-dealers and their registered representatives who provide advice to clients. The premise behind the effort is based on the perception that the fiduciary duty governing investment advisers provides greater investor protection than the suitability standard governing broker-dealers.
What the Fiduciary Standard Could Mean for us is: The Dodd-Frank Act permits the SEC to require that all broker-dealers be held to the same legal fiduciary requirement investment advisers have when providing advice to clients. Should the SEC choose to use that authority, the fiduciary duty as defined by the Dodd-Frank Act would require that all broker-dealers be held to a legal and vaguely defined standard "to act in the best interest of the customer without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice."
While NAIFA members believe they 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 recommended product? 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.