July 28, 2010
The SEC needs to adopt the same fiduciary standards that apply to an ERISA fiduciary for retirement plans and participant level advice. We need a standards of care that is consistent and consistently applies across the securities, banking and insurance channels.
Anyone that serves a retirement plan or participant should acknowledge their fiduciary role and adhere to ERISA fiduciary standards. Advisors should be restricted from selling or recommending any investment that provides compensation to any party other than the investment manager. By forcing the distribution of institutional shares only we eliminated litigation expenses and associated claims of conflicts and self dealing. No retirement plan should acquire an investment that has a 12b-1. I am not recommending the removal of 12b-1 for retail business where I believe they serve an appropriate purpose but there is no room for 12b-1s in retirement plans.
By imposing an institutional distribution of investments all investment managers compete on cost, performance and risk. No pay to play. In addition, you eliminate all advisors that are not dually registered thereby imposing a requirement that an advisor must be an RIA to receive compensation and the compensation must be disclosed. This puts everyone on a level playing fields and protects plans and their participants as well as promoting the integrity of the financial markets and restoring faith in the financial industry.
As far as the retail market is concerned, elevate the fiduciary standard of the registered rep to that of the RIA. Its good for clients, the industry and the B/Ds.
It is a said commentary on our industry that you are required to have more years of training to cut hair in North Carolina than you must have to sell investments or serve as an RIA. No wonder the public image of Wall Street, the SEC and FINRA are in the toilet. If you establish higher standards the part timers will leave and the industry will experience higher margins with fewer people. At that point future entrants into the financial service industry will view it as a profession instead of a sales position for anyone without qualifications.