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Proposal would sweep RIAs, planners, brokers into one huge regulatory pool (Updated)

New board promoting the fiduciary standard would oversee 75,000

Author Sara Hansard March 10, 2010 at 9:46 AM
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Sen. Herb Kohl favors disclosure by planners of conflicts of interest and compensation.



fiduciary standard




CFP Board




Financial Planning Association


National Association of Personal Finance Advisors


Financial Planning Coalition

Stephen Winks

Stephen Winks

March 10, 2010 — 3:04 PM


The challenge is the industry is trying to make advice homogenous when in truth the client plays an important role in determining the depth and breadth of the relationship they have with their advisor. There are four distinctly different levels of counsel routinely provided: (1) a transactions relationship where no advice is rendered, (2) a financial planning relationship which is needs based selling unless it is continuous comprehensive in nature in supoport of fiduciary standing entailing technology beyond the reach of 99% of planners, (3) a investment management consulting relationship which treats advice as a product the broker sells or (4) a fiduciary relationship in which advice is treated as a process the advisor manages.

The problem is that every advisor wants to say they are acting in a fiduciary capacity in the best interest of their clients when it is literally not possible in brokerage firms, both wirehouses and independents, because of structural conflicts of interest. The reality is the industry is structured to treat advice as being incidental to trade execution when today trade execution is incidental to advice. This fundamentally changes the industry and to no ones suprise there is massive cultural push back on changing how business is being done.

The hard truth is there will be no meaningful solution until:
(1) trade execution is treated as a cost center in the consumer’s best interest rather than a profit center in the best interest of the advisor’s firm required in fiduciary accounts, (2) securities lending must either cease or if done, revenues should accrue to the consumer’s account,
(3) the free use of client assets and interest earned on those assets between trade execution and settlement should be eliminated and credited to the client’s account,
(4) cease the penalization of brokers in acknowledging their fiduciary obligations to act in the consumer’s best interest,
(5) providing the necessary enabling resources which would safely bring fiduciary standing within the reach of every advisor: (i) prudent processes tied to statutory documentation and expert opinion letters opining to the fidelity of the prudent process to fiduciary standing for each of the ten major market segments in which advisors serve. (ii) technology necessary to support continuous comprehensive counsel. (iii) a functional division of labor (Advisor, CAO, CIO) which simplifies the execution of fiduciary counsel. (iv) expert advisory services support for each of the ten major market segments (Mass, Retail, HNW, Ultra HNW, DC, DB, Foundation and Endowments, Public Funds, Profit Sharing, Taft-Hartley). (v) an easily understood characterization of the nature of the client/advisor relationship which would establish a hierarchy of advice from transactions to planning to consulting to fidiciary standing to remove any confusion for regulators, legislators and consumers to protect advisors and their supporting firm.

This importantly (a) eliminates conflicts of interest, (b) restores investor confidence, (c) results in a different compensation protocol suggested over a decade ago by the famous Tully Committee Report to the SEC on Compensation Practices, (d) gives consumers choice in the nature of the advisory relationships they wish and (e) makes it easier for advisors and their supporting firm to support advisory services without denigrating the fiduciary standard of care.


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Mentioned in this article:

National Association of Personal Finance Advisors
Top Executive: Geof Brown, CAE

Financial Planning Association
Top Executive: Lauren S. Schadle, CAE, Executive Director and CEO

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