September 3, 2010
I work in the financial planning profession and have been following this issue for over three years. Two major observations: 1) You, the SEC, have not clearly identified the problem you are trying to solve. You identify issues, but ones which lack an operational definition. 2) You, the SEC, appear to be caught up in the raging battle between two groups. One group self-proclaims its right to define fiduciary standard and boasts that it wears the fiduciary mantle, while claiming that others do not. The other group screams foul play and asks you to regulate in practical terms what you can uniformly enforce. Neither group, we all notice, really wants more oversight upon itself.
The first group claims that its patrons are not in the sales profession, and yet this group strongly advocates for the model in which advisors are paid from a percentage of assets under management. This model is most obviously rife with conflict of interest.
My thesis to you is that almost all financial planning, advisory, consulting, management (and all the other titles) are in the sales business. Less than 1% of RIAs derive most of their income from a non-sales practice. These rare advisors simply charge fees for work performed, just like MDs, JDs and CPAs. The other 99%+ are in a conflict of interest in just the same way as a car salesman or realtor. There is nothing wrong with this conflict of interest. Capitalism is built on this model. The customer is, however, entitled to a full and honest presentation of what he is buying.
I encourage you to resist the temptation to simply find some type of compromise between the competing groups. Neither of them has identified the real problems in this controversy. Both groups represent a sizable number of honest professionals and an even larger number of practitioners who try to benefit themselves through dishonest and deceitful practices. Mr. Evanskys claim that he represents an identifiable group of people who follow a fiduciary standard is patently and measurably false. The bad apples are spread relatively evenly across our field. Signing an ethics pledge has not changed the distribution.