Why Should you Care about a “Fiduciary Standard”?

Currently the approximately 630,000 brokers, bankers, and insurance agents registered to sell securities must determine whether investments are "suitable"—based on how much money you have, what else you are invested in, your tax status and what your investment objectives are. These salespeople aren't obligated to act as a fiduciary, in your best interest, even when they have a personal incentive for selling you particular investments. The fiduciary standard is a legal concept, but its core idea is not complicated. To act as a fiduciary means we professionals have to put aside our own financial interests, and the business interests of any company we work for, giving recommendations that are solely and completely in the best interests of our clients. We thought things were going to change when Congress drafted legislation this year which, among other things, would bring every provider of financial advice under a fiduciary standard. Unfortunately a revised version of the financial reform bill, recently introduced in the Senate Banking Committee by Connecticut Democrat, Christopher Dodd, fails to extend the fiduciary standard of care to brokers who give personalized investment advice. Instead, the legislation mandates that the Securities and Exchange Commission (SEC) and the Office of the Comptroller of the Currency conduct a study on the various effects of extending the fiduciary standard to brokers offering financial advice – a process that could take years. The Financial Planning Coalition, comprising the Financial Planning Association (FPA), the Certified Financial Planner Board of Standards Inc. (CFP) and the National Association for Personal Financial Advisors (NAPFA) responded with: “There is well-documented consumer confusion around the different legal obligations that broker-dealers and investment advisers owe to their clients for essentially the same services,” said coalition spokesman William Baldwin. “The extension of the fiduciary standard of care — which mandates that a financial adviser must act in the best interests of his or her clients — to all brokers who give personalized investment advice would clear up this confusion and strengthen protections for all Main Street investors.”