July 30, 2010
The suitability standard governing broker-dealers and registered representatives is a robust and heavily enforced standard. A fiduciary standard governing investment advisers focuses on past occurrences rather than focusing on best practices going forward..
Compliance costs-both in terms of finances and time-are high, and those costs are eventually felt by clients. Adding another layer of regulation means another layer of compliance, and even more cost to clients.
I currently hold my 2-15, series 6, and series 63. I am required 24 hours of CE every 2 years for the 2-15, aside from the 12 CE credits annually for my investment licenses, not to mention annual compliance exams through FINRA.
Not only do I spend a large amount of time ensuring that my files and case notes are compliant, but I have compliance checks at least once a year with the Director of Network Office Supervision.
There are many instances where what is "suitable and compliant" do not serve the client's best interests based on the cookie cutter measures. Our business is customizable and we end up justifying ourselves because some arbitrary red flag was waived because the recommendation did not fit the cookie cutter mold.
The liabilities of a fiduciary duty could mean increases in costs and my ability to serve my clients. Most will be hesitant to go the extra mile in fear that they will be sued. Moving to a fee-only model would not result in better, unbiased advice,simply force us to have a fee only model to protect our selves from liability from the uneducated prospect who is not willing to pay fee for service. None of my clients are currently billed in this fashion, however, many of my clients can't afford to pay up front fees nor will they be willing to. Not to mention that increased liabilities will drive up our errors and omissions coverage.
In closing, I feel this will diminish the industry and drive many good advisers out of the business because the risk is not worth the reward.