August 29, 2010
Both the suitability and fiduciary standards have co-existed for a long time. Since the repeal of the Merrill Lynch rule, it has become clear that more and more consumers want professional advice, and they expect to pay for it. The failure of not having a fiduciary standard apply uniformly to investment advice results in unsuspecting consumers often getting something they didn't bargain for. Without clear and concise performance measurement, and complete transparancy on fees, the consumer is likely set up for failure.
BUT...many financial advisors , in one way or another, they sell insurance and investment products, with the compensation baked into the cake. Most of these individuals are subject to the compliance standards of a broker-dealer, or none at all, if a pure insurance product is involved.
A simple, required disclosure in all tranactions, signed off on by the client, which discloses the form of compensation, should suffice. RIA fims have clients sign engagments usually in the form of a writen contract. Requiring non-RIA transactions to disclose compensation and any conflcits of interest will improve client understanding and confidence in what they are getting.
Making everyone adopt a business model that does not fit is unreasonable. Mandating more clarity about wehich hat a professional is wearing is a step in the right direction.