May 15, 2013
I am the Chief Compliance Officer of an RIA in West Michigan.
I believe that the standard of care is less of a concern than the nature of the financial advisor's compensation.
There is valid concern that groups of people will have limited access to personalized investment and financial planning advice if a uniform fiduciary standard is applied. In addition, certain products will be difficult to distribute if there is a uniform standard of care applied to all brokers, dealers, agents, and advisors. Not all consumers of financial services are interested in fiduciary advice and the government should not force people into a fiduciary model in an effort to protect them. Finally, there would need to be some special consideration given to institutional broker-dealers who deal with financial professionals, because we do not want or need a fiduciary standard of care from the broker-dealers we use for custody. Therefore, I believe that a uniform standard of care is not the best solution for consumers or the retail finance industry.
However, I do believe there is merit in full, fair, plain English disclosure of the amount of compensation or other remuneration received by sellers of financial advice and products in connection with the sale of those products. When commissioned salespeople style themselves as advisors of any kind (most commonly as "financial advisors", although increasingly as "wealth managers"), consumers have a right to know how much their "advisor" earns from the sale of products to them. If used car salesmen styled themselves as "transportation advisors" and put on a pretense of putting their clients' needs first, but took the largest commission they could from the sale of a product that may or may not be in the clients' best interests(but was, of course, suitable for the clients), then the problem we have in the retail financial industry seems obvious. However, the problem is not the standard of care - it is the failure to disclose the dollars that drive the advisor to recommend a particular transaction.
The solution is not to force salesmen to become fiduciaries - it is to force the disclosure of sales commissions prior to the completion of the sale. With this information, consumers are empowered to shop around for the best fit of advice and cost, and they can find the value proposition that best meets their needs. Firms will strive to improve their value proposition and evolve to meet customers' changing needs, and bad products and bad actors will be squeezed out of the market because their prices are too high or they do not deliver value consummate with their cost.
I encourage the SEC to reframe the problem affecting the retail financial advice industry, not as an issue of the standard of care, which is abstract to the point of confusion for consumers, but to focus on the real heart of the problem, which is that undisclosed sales commissions inhibit people from identifying (1) how much their advisor costs them and (2) how to get the best value out of various retail financial offerings. Consumers may not understand the importance of different standards of care, but they do understand prices, and disclosing those prices will enable the private markets to solve the problem that the SEC is trying to solve with a uniform standard of care.
Thank you for the opportunity to submit my comment. I appreciate your time and attention in this matter. Thank you
Dave Hodge, CFA