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The RIABiz list of winners and losers in the wake of the SEC's fiduciary study

The race is on as laggards adapt to new vision of the future

Author Elizabeth MacBride January 28, 2011 at 1:17 PM
no description available
Brian Hamburger: The SEC is lining up the facts so that later the conclusion becomes obvious (it can’t regulate advisors with current resources). ... It’s genius, what they’re looking to do, but it’s incredibly transparent.

RIA Compliance

Barbara Roper

Barbara Roper

January 28, 2011 — 5:10 PM

I see one key flaw in the argument attributed Brian Hamburger and Don Trone that advisers will lose an important competitive advantage if brokers are subject to a fiduciary duty. How can advisers’ fiduciary duty be a valuable competitive advantage when investors don’t know the difference between brokers and advisers, can’t tell whether they are dealing with a broker or adviser, and don’t recognize that they are subject to different standards? I think this argument would have been valid if the SEC had ever prevented brokers from misrepresenting themselves to customers as advisers, but that is water under the bridge.

Don Trone

Don Trone

January 28, 2011 — 6:49 PM

Barbara raises a good point: the public, at large, has not been able to discern the difference between a fiduciary and suitability standard. On the other hand, a fair percentage of individual advisors have been able to distinguish themselves as fiduciaries with certain individual clients, and with other professionals, such as attorneys, accountants and retirement plan service providers.

Brian Hamburger

Brian Hamburger

January 28, 2011 — 7:03 PM

Barbara, I understand that your constituents want you to hold their advisors to the highest possible standards. But you are suggesting that, instead of separating these two industries by removing the broker-dealer exception from the Advisers Act, we should instead give in to consumer confusion and remove any distinctions between them. The movement for independent investment advice was harmed when brokers were permitted to dress up like advisers. Your suggestion relegates that costume to a permanent uniform.

Barbara Roper

Barbara Roper

January 28, 2011 — 10:59 PM

Brian, You are absolutely right. Having fought fruitlessly for 25 years to get the SEC to enforce the distinction between brokers and advisers, I am bowing to the inevitable. When they allowed brokers to offer financial planning and investment planning outside the protections of the Advisers Act, allowed them to call themselves financial advisers outside the protections of the Advisers Act, and allowed them to advertise that “advice is at the heart of our relationship” without questioning whether such advice was “solely incidental” to their brokerage activities, the SEC effectively removed all meaningful distinctions as far as the investing public is concerned. We opposed every single one of those decisions, and we lost every single time. In an ideal world we would draw a clear line between these two functions, this is not an ideal world. So, while the approach of extending the fiduciary duty to advice by brokers is far from perfect, it is the best option that is politically feasible and will extend important protections to investors who need them.

Stephen Winks

Stephen Winks

January 29, 2011 — 3:10 AM

After reading Barbara Roper’s comment, there is certainly progress in the right direction. Though if there is no ongoing duty of client loyalty and care after a recommendation is executed and the broker is paid, isn’t the impied fiduciary standard not remotely close to the traditional understanding of fiduciary duty. Further, doesn’t disclosure of conflicts simply perpetuate conflicts rather than requiring them to be managed on behalf of the consumer in the consumer’s best interest.

We assume that the brokerage industry will lead in the best interest of the consumer to win market share, yet as Barbara Roper points out—nothing in the past 25 years would support that thesis.

My disappointment is, unlike the FSA in England, the SEC is very passive in their recommendations. If the industry will not lead and the SEC is passive, where will the required market leadership come from?

Where will the vision, leadership and resources come from that will make advice (fiduciary standing) safe, scalable and easy to execute, as it is viewed as heresy within many firms to suggest that advisers need to be properly resourced to fulfill their fiduciary duties when previousily fiduciary standing was not even acknowledged. Doesn’t this represent a significant challenge for the industry? Is the industry taking the fiduciary standing of its brokers seriously or is its tact to simply waterdown what is required so not much is changed? If there is a different fiduciary standard for retail advice than institutional advice which seems to be emerging, then isn’t it self defeating for retail brokers?

There are a lot of questions that require principled leadership. Legitimate fiduciary standing for brokers is in the broker’s best intererst. If it were up to brokers, the difficult decisions would be made in support for fiduciary standing. But the industry has largely been insular to the best interest of the consumer as Barbara Roper has found. In order for Dodd-Frank and the intent to hold brokers to the fiduciary standard of care to be effective—it presumes the industry actually has an identity of interest with the consumer—this is the Elephant in the room. It is faster, better and cheaper for the industry to support the traditional understanding of fiduciary duty than permanently cripple retail brokers with the perpetuation of conflicts of interest through disclosure and the broker’s absolution of ongoing responsibility for their recommendations.


Ben Baldwin III

Ben Baldwin III

November 4, 2011 — 10:54 PM

The entire concept of a fiduciary standard originates if I recall correctly 4 or 5 years ago, perhaps more, time flies, with a study conducted (I beleive SEC sponsored), in which it was determined that consumers were confused about what ehtos their advisor was bound by and what it meant. Namely, the question of whether the advisor selling as a broker or agent or advising as a fiduciary was one they determined in the study the client could not answer. The consumer was confused about the implications for them of the differences. I was aghast at the study’s conclusion at that time and found it so ludicrous as to be laughable and not even worth thinking about. The conclusion of the study which found that consumers didn’t know the difference between a broker and a fiduciary advisor was not to educate the consumer, but to create a new definition of fiduciary which was essentially NO LONGER a fiduciary at all but could be a broker or a fiduciary advisor so long as they did things in accordance with certain specific rules. No longer would you have to put your assets on the line and keep the clients BEST interest FIRST. The solution was to degrade the value and ethos of the fiduciary advisor to look like a broker or agent. The idea was and still is crap. There are no rules that can ensure a individual keeps their clients interest first, there is only the contract between the advisor and the client, and the traditional standards of fiduciary that principally, define the liability of the fiduciary who fails to behave as one.

Making sales people follow procedures to look like fiduciaries does not change the heart of the matter or clarify any definitions. Are you beholden to the client for your income or to the product manufacturer?


Stephen Winks

Stephen Winks

November 5, 2011 — 3:36 AM


Thank goodness for the DOL’s Phyliss Borzi who is holding firm on the traditional understanding of fiduciary duty. Every broker who is doing a great job for their clients is acting in a fiduciary capacity.

There is the fiduciary standard of care required under ERISA based on 800 years of English Common Law and objective, non-negotiable fiduciary criteria of statute, case law and regulatory opinion letters. The brokerage industry has had every opportunity to support the fiduciary standing of its brokers and had instead decided to oppose their brokers being able to act on behalf of their clients in the client’s best interest, fulfilling the brokers fiduciary responsibility to act in the consumer’s best interest.

It is self defeating for the brokerage industry to support anything less than the traditional understanding of fiduciary duty. The brokerage industry would self select itself to permanently afford an inferior broker value proposition rather than support its brokers acting in the consumer’s best interest. There is no secret why the consumer has lost their trust and confidence in the brokerage industry. The industry has lost its ethical bearings and Dodd-Frank affords the opportunity for the industry to reset its moral compass.

By ignoring its fiduciary responsibility to support its brokers to act in the consumer’s best interest—the brokerage industry openingly acknowledges its obsolescence. There has never been an occassion in a free market where the best interest of the consumer has not prevailed.

It is not possible for the brokerage industry to take short cuts in a free market. Transparency and disclosure will not allow the industry to confuse fiduciary standing regardless how clever the industry may be. Enterprising advisers working in a free market, in the context of an authenticated prudent process confirmed by expert opinion letter, who are acting in a the client’s best interest, will prevail every time.

Bring the brokers on. They are not ready to compete and their words and actions counter to the best interests of the consumer will haunt them. At some point the industry will have to explain to brokers why the broker is paying their b/d 60% plus of their gross revenues and getting inferior advisory services support.

The industry has a vision and know how deficite that must be resolved, otherwise the broker becomes a high cost low value added alternative to advisors subscribing to a fiduciary standard of care.


Ben Baldwin III

Ben Baldwin III

November 5, 2011 — 2:19 PM

2008 study conducted for the Securities and Exchange Commission by the RAND Corp.

Stephen Winks

Stephen Winks

November 6, 2011 — 3:03 AM


Indeed, the Rand Study confirmed the consumer’s confusion on the role and responsibility of the broker. Advisors will make it clear that brokers are not accountable for their recommendations after they are executed, and have no ongoing responsibility to act in the consumers best interest base on objective non-negotiable fiduciary criteria of statute, case law and regulatory opinion letters. This can be made crystal clear to the consumer in highly understandable terms.

The brokerage industry maintains brokers do not render advice, they simply make the client aware of their investment alternatives. It is up to the consumer to determine investment merit on their own, regardless how limited the consumer’s investment knowledge and experience may be. What the consumer thinks is a broker recommendation, is not only not a recemmendation but the industry insists that no investment advice is implied or rendered. This is the industry’s principle defense against fiduciary liability as there is no liability if no advice is provided by the broker. By extention, if no advice is provided, no value is added by the broker and thus the role of the broker is simply the clerical function of trade execution services as confirmed by mandatory arbitration proceedings managing client disputes.

The fact is brokers are neither accountable or responsible based on the industry’s present business model—which has lost the trust and confidence of the investing public. This has required an act of Congress (Dodd-Frank) to protect the best intereast of the investing public.

The ball is in the brokerage industry’s court to properly provide the prudent processes, statutory documentation, advanced technology, work flow management, conflict of interest management and expert advisory services support in the consumer’s best interest.

We are about to see who the good athletes are and who has been peddeling down hill.

The sophistication, or the lack there of, of the brokerage industry is about to be exposed and there is nowhere to hide.


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Mentioned in this article:

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

Cerulli Associates
Consulting Firm
Top Executive: Kurt Cerulli

MarketCounsel | HamburgerLaw
Compliance Expert, RIA Set-up Firm, Regulatory Consultant
Top Executive: Brian Hamburger

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally

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

Diamond Consultants
Top Executive: Mindy Diamond

Focus Financial Partners, LLC
Consolidator/Roll-up Firm
Top Executive: Rudy Adolf

RIA in a Box
Compliance Expert
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