August 31, 2010
Thank you for the opportunity to express my concerns about the financial services industry. I am a registered representative that FULLY SUPPORTS THE FIDUCIARY STANDARD for all financial advisers. I believe I offer a unique perspective since I have been a registered representative since 1993, working 12 years in a bank as a financial consultant and the last five with an independent broker dealer as an owner of a financial planning firm.
With regards to your first request, the effectiveness of existing legal or regulatory standards of care for brokers, dealers, investment advisers,.... I believe that at a minimum ALL advisers should be legally obligated to give financial advice that is in the best interests of their clients. This will include disclosing all conflicts of interests how they are compensated, if they receive special trips or dinners, etc, which will give the investor a broader view of the conflicts of interests that exist for financial advisers. Investors would be appalled if they knew the thousands of dollars that was spent on trips and the such to get financial advisers to sell XYZ Companys product. It is very difficult for investors today to make the right decisions for themselves due to the fact that they dont have all of the information and that they dont understand all of the players on the field, their roles, and how these players are compensated. It would be the same problem if Tom Brady suited up to play a game and did not know what the safety did. How many investors understand the role of the wholesaler, how they are compensated and the conflicts of interests that persist in this relationship with the financial adviser? This needs to be addressed and remedied.
Regarding your second point whether there are legal or regulatory gaps, shortcomings, or overlaps in legal or regulatory standards in the protection of retail customers relating to the standards of care for brokers, dealers, investment advisers, persons associated with brokers or dealers. Once again they dont have to disclose that they are being compensated more for offering this product over another one that might be more appropriate for the client. The lines are blurred for almost all investors and this needs to end by either putting every financial adviser under the same fiduciary standard, the one that investment advisers have to adhere to now, or making a dark, thick line differentiating the two, the fiduciary standard and the suitability standard. Brokers should not be able to have their cake and eat it to, sell products, earn a commission, create a financial plan, earn a fee, as well as earn fees for advice in advisory accounts all without disclosing compensation or conflicts of interests.
Regarding your third point whether retail customers understand the differences between the different standards of care is a resounding NO. From my perspective which is limited to my market, I have spoken to people with great wealth, people with very little, and people in between and really no one knows the differences. I have had conversations of heads of departments at Fortune 500 companies, attorneys, CPAs, and it quickly becomes obvious that the information out there on this topic has not done anything to eliminate the confusion. Once again this could be fixed with all financial advisers being under the fiduciary standard.
In closing, I appreciate the opportunity to express my opinion on this subject. I have great concern regarding how financial advice is being disseminated in this country and I think major changes need to occur in order for investors to get advice that is always in their best interest. There are many secrets that this industry has and if investors we made aware of them I believe the whole level of the quality of advice would go up, to a level that has never been experienced before. I understand that this is not a simple task, that many major companies would have to change their entire business plan to fit this improved model, but isnt this the price that should be paid in order to do what is in the best interest of investors?