August 31, 2010
Dear Ms. Murphy,
Thank you for allowing me the opportunity to express my views to the Securities and Exchange Commission on what I think is a topic of great importance to the consumer.
I am a state registered investment advisor with decades of experience in the financial services industry. The issue of the standard of care that is applied to a client relationship has been one that has captured my attention for the last decade since it, in my opinion, inappropriately defines the greatest marketing opportunity of the century.
While you are conducting a study on the Obligations of Brokers, Dealers, and Investment Advisers you must also take into account the role and obligations of the consumer. As it stands now the consumer has a choice to the type of relationship that they want with a service provider, what they expect and what they are willing to pay. At least one of the factors that a consumer may be considering has been muddied through the use of the exemptions using the phrase solely incidental to the conduct of his business and that applies to attorneys, accountants, engineers and brokers. Hopefully one positive outcome of your study and rulemaking will be a clearer definition of that phrase and a more concrete definition of what advice is.
I was reading through many of the comments submitted and it is fairly easy to determine which letters are sent as a result of a lemming breeding campaign and which are true expressions of concern. Clearly you have the dreaded special interest groups supplicating themselves before you, each arguing that if you follow their advice that they American public will be so much better off and that the days of financial crisis will always be referred to in the past tense. Hopefully you can read though all that and see that each side is simply looking for an edge and that neither side is superior, just different.
When addressing consumer protection President Obama asked why the language on credit card inserts should require that the reader have a law degree to understand them and I think that the same could be asked of many of the agreements used in the investment field, be it broker dealer or advisor.
Some of the comments, which were canned, said that the quality of the advice should not be determined by the nature of the provider. That statement presupposes an advantage towards either a broker or advisor and that is simply something that has not yet been demonstrated. Quite frankly the consumer will not benefit from better advice regardless of your final rules, they will only benefit from having a different legal remedy.
Patricia Potts who submitted comments on behalf of what seemed to be an organization with the best interests of the consumer in mind suggested that your pronouncement come down without the imposition of a uniform standard but rather that rules be made that would prohibit dual registration of individuals, the use of titles other that Registered Investment Advisor and Broker Dealer, with their appropriate individual derivations, a definition of advice that lent itself more to the securities in question and less to some easily obtained calculation and more disclosure, presumably in language that is easier to read.
In 2007 I had an article published addressing the issue of being a fiduciary and I firmly believe that it is the definition of advice that provides the confusion and that each camp has more similarities than differences. I had called for the removal of the exemptions then but not for the disappearance of the brokerage world. I think that the outcome is going to be very dependent on how aggressive you are with your definition of personalized investment advice. Hopefully you will limit that definition of advice to securities and not mathematical calculations that are readily ascertainable.
I think that if you address those issues and require more disclosure that you will then be allowing the provider of the service to be subject to either a fiduciary standard of care or a suitability standard, and the consumer will have the information needed to make a more informed choice based on what they are looking to accomplish