In this week's MailBag, we look at a recent inquiry regarding the proposed changes to the fiduciary standard, and whether the implementation of a uniform fiduciary standard that applies equally to all types of advisors could help or hurt investment advisers and the public.
Thursday, January 24. 2013
Question/Comment: I'm trying to better understand the implications for IA's if they were to be held to "a" fiduciary standard. Is the primary issue that they would be burdened by additional costs to comply? If all advisors are held to the same standard, does that somehow hurt the IA? When do we anticipate that all of this will be resolved?
The distinction of having all financial advisors subject to a fiduciary standard is that many of the current sales practices that occur would no longer be permissible. It wouldn’t be enough to sell someone a product just because it was suitable – or really, because it was NOT UNsuitable. Instead, the products implemented by financial advisors of all types would have to pass muster as genuinely being in the client’s best interests.
Regarding whether a uniform fiduciary standard could hurt investment advisers, I do think it’s worth noting that yes, as I’ve written in the past, current investment advisers do stand to be “hurt” to some extent with a uniform fiduciary standard, for the simple reason that it would eliminate their fiduciary status as being a differentiator from many of their current competitors. On the other hand, the reality is that as consumer education on these issues rise, fiduciary advisors are increasingly in competition with other fiduciary advisors already (because consumers seek them out), so it’s not entirely clear how direct the impact would be. On the other hand, if all advisors are subject to a fiduciary standard and really act in the interest of their clients, the potential to lift trust in financial advisors in the aggregate means there may be a whole lot more business available to everyone when consumers aren’t given quite so many reasons to be distrustful in the first place!
As for the last part of your question... implementation of a fiduciary rule, or not, is on the table now, with separate rulemaking processes underway from both the Department of Labor and the SEC. As I wrote a few weeks ago, I actually expect the ongoing fiduciary debate to be one of the primary issues of 2013!