August 29, 2010
Although well intentioned, it is undeniable that the current system does not work as well as it could.
I believe there should be only one standard of care regarding those who provide advice about securities. Basically that standard should include at a minimum - to act only in the client's best interest, without any conflict of interest and with competence in the area of the advice. The advice should not be ancillary - the sale should be.
To address some of the specific questions raised:
ISSUES 1,2,3 and 4: Not only does the public not know the difference between the various standards of care, but many practitioners appear not to as well.
What is most disturbing to me is that those opposing a universal higher standard appear to be doing so to maintain a continued ability to sell complicated financial products with long term finacial impact without the requirement to inquire deeply enough to determine whether it is the best decision the client can make. At some point, we need to subjugate the mere ability to make money to a requirement that the money be made responsibly.
The SEC is in a position to act to protect the public - I encourge the agency to do so, without politics. I believe a reasonable transition period can address the legitimate concerns of opponents.
This is critical:
(1)As the public does not know the difference in the duties between a comprehensive financial planner whose compensation may be based on a fee for service pursuant to a planning contract, and an insurance agent or stock broker who says they can do the same thing for free.
(2)As it is unfair to have very different regulatory requirements with their attendant cost differences for different practitioners without addressing the genesis of a public perception of the lack of difference. The current morass of regulations seems to obfuscate rather than clarify the issue.
ISSUE #12: The impact on the public of a higher universal standard of case might be a change in the way business is done - transitioning from a traditional product-centered arrangement to an advice-centered arrangement. Certainly there are, and will likely continue to be, ways for the public to purchase financial products without the aid of an agent and without advice. However, where advice is sought, the public should receive advice not colored by the need of the advisor to make a sale.
Costs to the public may change in form to fees from commissions. Commissions, as loads on products, may decline. I believe this could result in an expense offset. More important, there may be long term cost benefits, as members of the public make better long term decisions with better advice.
The financial services industry is experiencing a decline in the number of practitioners and an increase in average practitioner age. I believe that a directive from the SEC for a higher standard of care, will end a lot of current confusion and will allow the industry's training resources to focus appropriately to create a new crop of well-trained advisors.
I appreciate the opportunity to comment.