Almost four years after the Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, gave the Securities and Exchange Commission (SEC) the power to enact a universal fiduciary standard, Registered Investment Advisors (RIAs) and broker-dealers are still held to different standards. While investment advisors like me operate under a fiduciary oath and must always act in their clients’ best interests, broker dealers are required only to suggest “suitable” investments for their clients. The unfortunate fact is that investors don’t always know who they are dealing with.
Recently, however, SEC Chairman Mary Jo White asked her staff to draft a document outlining ways the agency could reform the rules governing investment advisors and brokers to advance a proposal to raise the investment advice standards for brokers. Ms. White said in a speech at the Consumer Federation of America’s Consumer Assembly in Washington, “I have asked the staff to make the evaluation of potential options an immediate and high priority so that the commission has the information it needs to come to a decision as to whether and, if so, how best to exercise the authority provided in Section 913 of the Dodd-Frank Act.”
She continued. “I have made this a priority because it is very important and we need to move forward to a decision.” I was encouraged by Ms. White’s sense of urgency and hope that it paves the way for reform. After all, last year, members of the SEC’s Investor Advisory Committee voted to recommend imposing a fiduciary duty on brokers who provide investment that now must be deemed only suitable.
Said Barbara Roper, an SEC advisory panel member who is director of the Consumer Federation of America, “There is behavior that is permissible under a suitability standard that isn’t in the best interest of the customer. Investors end up squandering money to pay excessive fees for mediocre investment options — not in every case — but it is permissible under the existing standard for brokers.” I couldn’t agree more.
It’s also high time opponents of the universal fiduciary standard stop using scare tactics that the application of a common fiduciary standard will increase the cost of financial advice for consumers to the point where middle class could not work with an advisor. That argument holds no weight. Applying a consistent fiduciary standard to anyone giving advice is the only way consumers will know who they are dealing with and have their interests protected. Certainly, this may make it easier for anyone who has not worked with a professional advisor to reach out to advisors, ask questions, and choose an advisor to work with.