The Not So Uniform Fiduciary Standard

The uniform fiduciary standard has become a holy grail of sorts for the financial advisor industry. Legends such as John Bogle tout how it is the only way to ensure that the interests of average investors will be protected. Proponents of the single standard stress that the current dichotomy between the fiduciary standard applicable to registered investment advisors and the suitability standard utilized by registered representatives is confusing to investors who fail to appreciate that certain advisors are not “acting in their interest.” Only with a uniform fiduciary standard, they say, will investors be safe from the current, misleading bifurcated regime.

Well, like most things that come out of Washington D.C., it’s not quite that simple.

You see, the uniform fiduciary standard has a catch. The 2010 financial services reform legislation, more commonly referred to as Dodd-Frank, explicitly provided that any uniform fiduciary standard imposed by the SEC cannot prohibit commission-based compensation and cannot require that the advisor continuously monitor investments. These provisions were included out of congressional concern that investors with smaller amounts of assets and lower incomes would otherwise not have access to the services of an advisor.

What would the practical result be, then, if the SEC moves forward with its uniform fiduciary standard? We would have two kinds of fiduciaries:

• “traditional” fiduciaries (e.g., RIAs) who do not receive commissions and have a duty to monitor their clients’ investments; and
• “new” fiduciaries (e.g., brokers) who are free to continue to accept commissions and are still not required to monitor investments.

Only in Washington D.C. would it be considered less confusing to label all financial advisors as fiduciaries even though there would be materially different standards applied to ‘traditional” fiduciaries as compared to “new” fiduciaries. Try coming up with a simple explanation for the meaningful difference between the current suitability standard and the “new” fiduciary standard other than it allows commission-based advisors to brand themselves as “fiduciaries.”

The National Association of Plan Advisors, which includes among its members both RIAs and registered representatives, agrees that average investors need better information about the role of their advisors. However, the kind of “non-uniform uniform” fiduciary standard being considered by the SEC will certainly not accomplish that, and in fact will lead to even more confused investors. Instead, we believe a simple, standardized disclosure given to investors before engaging an advisor (and annually thereafter) — one that explains what standard is applicable to the advisor (i.e., fiduciary or suitability), what services that entails, and how the advisor is compensated — would give investors the right amount of information so they can make the choice that works best for them.

American investors should not be treated like children. Labeling all advisors “fiduciaries” even though they operate under different sets of rules will not magically make the existing misunderstandings go away. Instead, let’s tell investors clearly and honestly what is going on. Sometimes the simple approach is indeed the best one.

Editor’s Note: NAPA’s response to the SEC’s RFI about their proposed uniform fiduciary rules was filed July 5. It can be found here.

Brian Graff is the CEO/Executive Director of ASPPA and NAPA.

Add Your Comments


  1. Barry Milberg
    Posted July 8, 2013 at 11:06 am | Permalink

    Disclosure of all relavent truths have no chance of assisting plan participants or plan sponsors as long as the supply chain is permitted to use terminology such as “no-load” when the “whole truth” provides that certain expenses continue to apply; and that “fees” are not commissions when in most instances the resultant costs are similar.

  2. Barry Milberg
    Posted July 8, 2013 at 11:11 am | Permalink

    And that ” share classes” do more to hide the “whole truth” then reveal it.

  3. Michael Darany
    Posted July 8, 2013 at 1:42 pm | Permalink

    Clearly folks who opt to go into an investment strategy or management relationship with out a full blown Financial Plan run the risk of not truly reaching their goals in a more managed fashion with reports and projections that are based on attainable multiple goals over a life span are the answer and need to be appreciated for what they are. The approach needs to be if a plan is not done then it is in fact bordering on what my as well be commissions as they are similar in compensation is the point. That planning does cost a little more in terms of fees and that the additional fees will add value as it is based on a predetermined set of goals that are an overlay to the process when managing the assets is enormously important to the ultimate success. moreover in the case of any misunderstanding or dispute the written plan and its goals and adjustments going forward have a written map of where things begin and where they have progressed to. That will save a great deal of misunderstanding particularly if you are called to arbitration. The Facts will be there.

  4. Rudy Garcia
    Posted September 26, 2013 at 11:48 am | Permalink

    Does anyone know NAPA’s position on Dually Registered individuals? Does NAPA supporting holding them to the tougher definition for all engagements? Do they support a case-by-case application of the metric? Or do they support some other position? Thanks

Post a Comment

Your email is never published nor shared. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Send this to a friend