I’m disappointed to report that the Securities and Exchange Commission (SEC) recently decided to put off implementing a key part of the Dodd-Frank Act: creating a fiduciary standard to govern all investment advisors who give financial advice. As an SEC-registered Registered Investment Advisor, I already operate under the fiduciary standard that the Dodd-Frank Act sought to apply equally to brokers who make investment recommendations.
For all the industry’s feet dragging and debate, the fiduciary standard is not a new or complicated concept. In fact, in a recent column, Bob Veres notes that the fiduciary standard can be found in the very first written legal code, the Code of Hammurabi (roughly 1770 BC) and in Cicero’s orations during the Roman Republic around 50 BC. Write Veres, “In the ancient world, a trader would take his caravan (or sailing ship) to some distant land to trade Mesopotamian clay pots or bronze artifacts for furs, tin or copper. Since the trader would be gone for months or sometimes years, somebody had to make basic business and financial decisions on that person’s behalf while he was on the road. And it was important that this person make decisions that were in the trader’s interest, not his own.”
Veres then goes on to quote Cicero’s Oration for Sextus Roscius of America:
“…in cases where we ourselves cannot be present, the vicarious faith of friends is substituted; and he who impairs that confidence, attacks the common bulwark of all men, and as far as another depends on him, disturbs the bonds of society.”
For all the legal wrangling, working as a fiduciary involves a simple standard of behavior. As a fiduciary, you protect the interests of someone who trusts you. In my line of work, that means making recommendations and investment decisions that are 100% in my clients’ best interest. It astounds me, especially in the wake of the credit crisis and Bernie Madoff’s Ponzi scheme, that industry regulators can’t agree on the importance of supporting and enforcing the fiduciary standard.