An early version of the 2010 Dodd-Frank Act would have eliminated the “broker-dealer exception” from the definition of investment advisor under the Advisers Act and required brokers to abide by the common-law fiduciary standard that investment advisors uphold. Unfortunately, that change was put on hold in order to study just how the reform might impact the consumer. Among the suggested consequences of this policy change has been the strange notion that requiring brokers to serve as fiduciaries would somehow limit middle America’s access to advisors by limiting a broker’s ability to sell commission products or offer a range of investments.
In their newly published paper, The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice, professors Michael Finke and Thomas Langdon analyze states that have a uniform fiduciary standard of care versus those that do not to determine what impact the regulation has on the availability and cost of a broker’s services. Interestingly, they find that the number of registered representatives doing business within a state as a percentage of total households does not vary significantly in states with stricter fiduciary standards.
More importantly, when comparing states with strict fiduciary standards and those with no fiduciary standard, they find no statistical differences between those groups of brokers in terms of percentage of lower-income and higher-income clients; the ability to provide a broad range of products, including commission products; the ability to provide tailored advice; and the cost of compliance.
I hope studies like this will motivate regulators to stop dragging their feet and require a uniform fiduciary standard. Only then can we ensure equal access to advisors who will always operate in their clients’ best interests.