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Fiduciary leaders splinter into two advocacy groups over divergent views

Knut Rostad takes six people with him to start the Institute for the Fiduciary Standard

Author Brooke Southall August 25, 2011 at 5:24 AM
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Harold Evensky: They want to be in a position to raise money from industry sources and that's something we didn't want to do.

RIA Compliance

Stephen Winks

Stephen Winks

August 27, 2011 — 1:04 AM

Harold is terribly astitute and draws upon decades of wisdom and experience to understand that political self interests in garnering financial support can often work at cross purposes in advocating on behalf of the consumer and the advisor in their best interest.

Exhibit A is the inability of the Institute for a Fiduciary Standard making a compelling and cogent arguement for brokers being held to the fiduciary standard of care for fear of offending the brokerage industry. The industry has strongly pushed back on the Dodd-Frank and the DOL’s efforts to hold brokers to the fiduciary standard—which should have been definitively and effectively been nipped in the bud just based on the absence of ongoing broker accountability for their recommendations and brokers affording no transparency in cost or compensation required for fiduciary standing. In an effort to avoid fiduciary responsibility, the brokerage industry has made it a violation of its internal compliance protocol for brokers to even acknowledge they render advice or have a fiduciary duty to act in the consumer’s best interest. Thus, the industry maintains that brokers simply make consumers aware of their investment alternatives. It is up to the consumer to determine investment merit on their own regardless how limited the consumers investment knowledge and experience may be. This certainly absolves the broker from having any responsibility for their investment recommendations but has destroyed the trust and confidence of the investing public in the reliability of the investment recommendations they receive. Essentially brokers are neither accountable or responsible.

Alternatively, advisers are responsible for every recommendation they have ever made and are required to act on behalf of the consumer in the consumer’s best interest. This should be a slam dunk public policy debate literally in support of the best interest of the consumer based on 800 years of common law and objective, non-negotiable fiduciary criteria of statute, case law and regulatory opinion letters. This can’t be screwed up, right? Well, none of the obvious arguements have yet to be made because of the very conflicts that Harold Evensky envisions.

As usual, Harold has this right.


Mark Kennedy

Mark Kennedy

August 29, 2011 — 12:36 AM

Interesting that the first issue the newly formed Institute decides to tackle is “Crafting Effective Disclosures”....

And who exactly are these Disclosures designed to protect?....the Industry or the Client?....give me a break !

Stephen Winks

Stephen Winks

August 29, 2011 — 8:44 PM


You are absolutely correct.

Rather than disclose conflicts of interest, which simply perpetuate conflicts, this new group thinks that rather than managing conflicts of interest on behalf of the consumer, in the consumer’s best interest as required for fiduciary standing, it believes the industry’s conflicts of intererst are just fine—if you DISCLOSE them.

The best interest of the consumer are literally and clearily not being served if disclosure is even concidered to be a remedy to actually being required to act in the consumer’s best interest.

How obvious can it be. The consumer’s best interest is not being served by this new group and is in no way an improvement over the old IFS group.

There needs to be a group that advances the best interest of the consumer and the adviser, so far none has emerged. The planner groups are beholden to broker/dealers who pay for 70% of planner dues and are opposed to fiduciary standing for brokers/advisers—thus the very ineffective advisory services advocacy in support of fiduciary standing for brokers. The wirehouses, regional and independent broker/dealers are simply not fiduciary advocates. Brokers have no say in the support their b/ds provide. In the biggest public policy debate in the history of the financial services industry—should brokers actually be required to act on behalf of their clients, in their client’s best interest and fulfill their fiduciary responsibilities—the consumer has no voice.

Congress and the SEC and DOL are charged with protecting the trust of the investing public, yet contrary to the consumer’s best intererst, the tens of millions of dollars in brokerage industry lobbing efforts funding political campaigne chests and fake consumer advocacy groups like this new group, are designed to counter the consumer’s best interest and advance the best interest of the industry. What a sad circumstance, when the industry is at odds with the best interest of the consumer.

There are very capable enterprise managers with in the industry who can (a) make fiduciary services safe. scalable and easy to manage and execute which (b) generate far superior economic metrics than commission sales and© a far superior and less expensive advisor value proposition. The problem is it is politically inexpedient for our most capable business managers to speak out. The SEC and DOL need to make it safe for these executives to speak up and execute, providing much needed market leadership, by the SEC and DOL simply being definitive like the DOL is on IRAs and DC plans—requiring the industry to take decisive action, rather than fostering industry push back by indecision.


Mark Kennedy

Mark Kennedy

August 30, 2011 — 12:01 AM

Managing finances on behalf of others needs to be elevated out of the transaction “sales” pitt, and in to the strict “fiduciary” realm….the fiduciary laws and standards already exist, no need to reinvent the wheel here…..we will not see real progress on this front until Congress awakens and mandates a higher calling upon the entire money management industry…..they came close last year, but failed us once again, just like the debt ceiling fiasco last month….in the meantime, we continue to fight the good fight, and fortunately, consumerism slowly but surely educates the investing public as to the various operating models and their vastly different philosophies, ethics and values.

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