August 12, 2010
The suitability standard governing broker-dealers and registered representatives is a robust and heavily enforced standard. A move towards the fiduciary standard that is currently governing investment advisers would pose several issues.
Compliance costs-both in terms of finances and time-are already 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.
The liabilities of a fiduciary duty could mean even more additional costs for and a potentially more challenged ability to serve my clients. The following types of questions will have to be answered:
o Will moving to a fee-only model result in better, unbiased advice?
o Will I be forced to a fee only model to protect myself from liability?
o Can my clients afford to pay up front fees or will they be willing to?
o Will the liabilities drive up your errors and omissions coverage, forcing higher fees to cover these increased costs?
o Will I even continue to operate this part of my business if liabilities become too great?
In the end, different standards allow for different cost models, benefiting the entire spectrum of potential clients via choice. An across-the-board implementation of fiduciary standard will serve to eliminate different models, most likely, and shrink the market of service providers available to the public.