August 2, 2010
My relationship with clients currently falls under both the fiduciary standard, as well as the suitability standard. In other words, I manage accounts that are both "fee-based" with an overseeing fiduciary and "non-fee based" with me overseeing the account.
Both systems offer pro's and con's (i.e. the "fee-based" accounts are more strictly controlled and essentially eliminate the opportunity to "churn" the account to generate compensation, while the "non-fee based" accounts offer more opportunity to invest and focus in areas that would not be "prudent" under the fiduciary standard but have the potential for compensation issues) however, my feeling is that regardless of the controls you place on the broker-dealers, registered investment advisors, individual advisors, or anyone else transacting business in the investment management space, there are going to be people who work to gain the most financially and put the interests of the investor second (regardless of the standard you place on them).
At this point, the number of hours we have to spend on anti-money laundering, annual certifications, bi-annual certifications, and other regulatory elements seems excessive. Additionally, more restrictive measures (and thus a need for tighter control) would negatively impact the investor, as broker-dealers and RIA firms who are charged additional fees will pass them through to the investor. The combination of those two elements makes me fearful that adopting a universal fiduciary standard would increase the regulatory requirements, as well as increase costs to everyone. Both of those are negative impacts to the industry, as time away from focusing on my clients takes away from my ability to perform the best job I can for them, and additional costs to fund higher regulation is never a positive side effect.
Let this note serve to discourage you from recommending that Congress/the SEC/FINRA adopt a universal fiduciary standard.