Fiduciary Standards Would Protect US Investors: SEC Commissioner

By Mark Barnicutt on April 30, 2010

A commissioner at the U.S. Securities and Exchange Commission insists that anyone providing investment advice should be held to a fiduciary standard.

In a speech to the Investment Adviser Association Annual Conference in Chicago Thursday, SEC commissioner Luis Aguilar argued in favour of regulatory reform to to extend fiduciary duties to broker dealers providing advice.  The link below appeared in Investment Executive today.

Interesting that in Canada, there has been more discussion in the media recently about the notion of Investment Fiduciaries. Although I certainly recognize the many legal issues that many Advisory Firms in the Canadian Wealth Management industry would face by moving to the higher definition of a real, investment fiduciary, I believe that for Advisors who are truly helping clients manage their wealth — as opposed to Advisors who are in the transaction business of pushing product — this would be a welcomed advancement as it would:

1. Raise the bar on the professional standards of our industry.  Instead of just requiring Advisors to deal fairly, honestly and in good faith — which is required in Canada and a good set of baseline requirements for a professional investment relationship — require Advisors to place their clients’ interests ahead of their own.  A typical scenario in the investment industry is the conflict that gets created when an Advisor — when faced with the choice amongst competing investment products, many of which have different Advisor compensation levels to them – has to decide which investment product to include in a given client portfolio.  I’m an investment practitioner not a lawyer, but if I were to include the higher Advisor compensation product into a client portfolio, my interpretation of these words is that I may have dealt fairly, honestly and in good faith with my client BUT did I actually put my clients’ interest first??

2. Help separate Advisors who are really helping clients manage their wealth to meet their financial goals from the Wealth Management Posers who are pitching product, and all of the hype, sizzle and illusive returns that go with those typically risky strategies.  For instance, today, investment professionals who are registered as Portfolio Managers (versus Broker-Dealers), and have discretionary authority over client assets, are considered investment fiduciaries; they are practicing from a position of trust on behalf of, or for the benefit of their client.  In fact, in distinguishing their services, many Portfolio Managers, today, would highlight the fact that they are investment fiduciaries and, therefore, held to a higher standard of care when managing client wealth.  The issue is whether an Advisor has effective control or substantial influence over investment decisions, which is pretty clear-cut for those who have discretionary authority.  The debate is about extending this to Broker-Dealers where such discretionary authority does not exist……ie: the client has to give final authorization to any securities transaction in their account.  Years ago, when broker-dealers were not in the business of providing Advice — they simply facilitated the trade — it would be hard to argue for a fiduciary standard, BUT when broker-dealers are not only facilitating a trade but also providing advice, I think, from a practitioner’s perspective, the argument against those broker-dealers providing advice moving to a fiduciary standard of care — as with discretionary Portfolio Managers — becomes very weak.  If you think of the typical Canadian investor going to a broker-dealer for advice (as opposed to simply placing a trade) on how to manage their portfolio….even though they have final say on each trade…..they are very much relying upon, and trusting, the expert advice of the broker-dealer and many Canadian investors would be expecting their Advisors, to be placing their clients’ interests ahead of their own.

3. Be one step major forward in helping to regain the loyalty, trust and confidence that has been lost with the investing public over the past few years!

In the United States, Fi360 (Website) has been front-and-centre over the past several years in the creation and education of a set of professional practice standards for investment fiduciaries. Fi360 offers a full circle approach to investment fiduciary education, practice management, and support.  To view a recent interview on Advisor TV by Blaine Aiken (CEO, Fi360) concerning the current proposals in the US regarding the adoption of a universal investment fiduciary standard.

About Mark Barnicutt

As HighView’s President, CEO, and Co-Founder, Mark Barnicutt is knowledgeable in all major functional areas of the family wealth business. He is an expert in wealth management, leading HighView with over 25 years of experience in the industry.
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