July 30, 2010
My main concern with using a fiduciary standard to test the relationship between customer and registered representative (RR) is that most broker dealers (BD's) do not have the personnel or the budget to effectively implement this standard. BD's and their contracted RR's have already shown a high level of compliance competence when it comes to consumer level transactions, such as mutual funds insured financial products (Variable Life, Variable Annuity). I believe the fiduciary standard will effectively shut down one of the few sources left in our society for most investors to speak with, their trusted advisor. The 401k / 403b regulations, designed supposedly to protect the investing public, have already taken away most of the funds and RR's that used to serve that market (that includes me), and the public is left to make their own decisions with zero advice, or get out their checkbook and pay a financial advisor seperately, which is what financial advisors wanted to happen. The fiduciary standard is backwards looking, the compliance standards we subject RR's to today are forward looking, designed to prevent inappropriate transactions up front rather than try to punish them later. Applying a fiduciary standard to the BD's and RR's of the investment world will more than likely end their participation. Small investors who would not get the time of day from a financial advisor are the ones left out in the cold. Who is to say what is best for the customer? Are we going to hang our hats on load vs. no-load funds? All VA's are evil? Cash value life insurance? The possibilities for class action lawsuits are endless, making lawyers giddy and killing one more industry that serves the public well. BD's and RR's are already using customer assets, liabilities, cash flows, emergency funds, and product disclosures to measure the appropriateness of a transaction up front, this fiduciary standards idea just flat kills a useful source for the consumer in favor of expensive advice from those who wish to force the standard, rather than letting the consumer choose. This is one more stupid law that will not achieve any of the goals set forth by its proponents, rather, it will just kill the BD / RR business for consumers, who currently have advice available for free.