As it has for some time now, the SEC continues to consider expanding fiduciary rules to include broker-dealers who work with individual investors. However, the longer the debate goes on, the greater the risk that the fiduciary standard will become diluted.
In a recent article, Fiduciary Standard Getting Watered Down?, Kenneth Corbin quotes Ron Rhoades, the curriculum coordinator of the financial planning program at Alfred State College in New York, as saying, “The federal fiduciary standard is under attack at the current time. What we have now is a fiduciary standard that looks like disclosure only. Well, if disclosure worked, there would be no need for a fiduciary standard.”
I couldn’t agree more. An advisor disclosing to a client that they may have conflicting interests is certainly a far cry from adhering to the fiduciary standard whereby the advisor must always put his clients’ interests ahead of his own.
Wall Street lobbyists continue to split hairs and insist that there’s no need for the SEC to regulate brokers (who are now governed by the lesser suitability standard) as fiduciaries. However, John Bogle, founder of the Vanguard Group, has offered very simple guidelines regarding the fiduciary standard. Bogle says, “If you’re touching other people’s money, you’re a fiduciary.” No confusion or wiggle room there.
So, where do we stand? The Labor Department and SEC are both at work on fiduciary duty rules. Currently, the Labor Department advocates for expanding the term “fiduciary” as it applies under federal retirement law to include any financial advisor who works with 401(k) and qualified retirement plans as well as individual retirement accounts. Although the SEC seems to favor requiring anyone who provides retail investment advice to operate under a uniform fiduciary standard, the measure resides on the agency’s “long-term actions” calendar. Therefore, it’s unlikely we’ll see this necessary protection added in the short-term.