July 30, 2010
I am strongly against a one size fits all Fiduciary Standard for Registered Representatives.
If the objective is to protect consumers, and we have a system of multiple advice/product delivery channels, then it's simple logic to have the strongest, best funded standard and regulatory system for each delivery system.
I believe that criminals are going to be criminals regardless of the regulatory system. However if you were to look back and review which standard has allowed more harm to consumer's you'd find that a fiduciary standard has allowed substantially more harm.
If we wanted to enforce a "one size fits" all approach, (which makes no sense in a complex world) then we should be moving towards the suitability standard.
Basically, the fiduciary standard looks back and enforces breaches retroactively through SEC enforcement or private lawsuits. The suitability standard looks forward and tries to prevent harm to consumers through ongoing and frequent FINRA and broker-dealer audits and compliance processes.
An overly simplified "one size fits all" fiduciary standard applied to a complex financial delivery system (that has taken free markets centuries to efficiently create) will have significant negative economic and societal implications....the magnitude of which I'm quite sure the administration does not fully appreciate
I'm a financial advisor who works with clients on a daily basis under both a fiduciary standard and a suitability standard. Whether advising clients as an RIA under the fiduciary standard or as a registered rep/insurance agent under a suitability standard, the client always receives the very best advice that I can give. The quality of advice and whether it's in the best interest of the clients will always come down to the character of the individual providing the advice.
For Example: Madoff would have abused his clients under either standard of regulation. The key to protecting consumers is to have strong enforcement of the most appropriate standard for the delivery system.
If you review the UK's financial regulation, you'll find that their move to a fiduciary standard of care has resulted in millions of consumers underserved by financial advisors that could have had a meaningful, significant impact in their lives. Instead of receiving suitable investment and insurance advice, consumers receive no advice at all. Not to mention the tens of thousand's of advisors who have lost their livelihoods because of misguided standards.
The end result of a fiduciary standard would be a significant economic event as financial advisors and insurance agents that also act a Registered Rep are forced to fire their employee's, terminate their lease's and go out of business due to the significantly increased cost of doing business and liability. Worse yet, millions of middle income consumers "Main Street Americans" who currently have access to professional financial advice and products that are suitable to them, are going to have a rude awakening when they find they don't have the resources to pay for a financial professionals advice.
I strongly urge reconsideration of this well intended, however ill-conceived and misguided approach.