I read with interest InvestmentNews’ recent article by Mark Schoeff entitled, “Fiduciary groups urge SEC to prevent brokers from using ‘adviser’ title” and subtitled “Comment letters from the Committee for the Fiduciary Standard and the CFA Institute suggest the clarification is needed to differentiate brokers from investment advisers” which explained:
Fiduciary advocates are urging the Securities and Exchange Commission to prohibit brokers from calling themselves “financial advisers,” as the agency considers a regulation that would raise investment advice standards.
One of the biggest sources of investor confusion stems from the nomenclature that brokers use to describe themselves, the Committee for the Fiduciary Standard wrote in a comment letter on Friday.
When brokers hold themselves out as a “financial adviser” or “wealth manager” and when they advertise that they provide financial advice, it misleads investors, the committee said.
“[W]e recommend that the Commission require that any title they use clearly denote their role as salespersons,” the committee letter states. “Titles can range from ‘salesperson’ to ‘broker’ but may not include terms that suggest a level of advice beyond that of stimulating the sale of a product.”
Investment advisers, who must register with the SEC, are held to a fiduciary standard that requires them to act in the best interests of their clients.
Brokers, who register with the Financial Industry Regulatory Authority Inc., are held to a suitability standard that requires them to sell products that meet an investor’s objective and risk tolerance. But the standard also allows brokers to recommend investments that produce the highest revenue for the broker as long as the other elements of the standard are met.
The distinction can be lost on consumers, especially as brokers increasingly market themselves as providing holistic wealth management services.
“If you call yourself an adviser, then you should be fiduciary all the way,” said Kate McBride, a member of the steering group of the Committee for the Fiduciary Standard.
The vast majority of financial professionals are commission-based agents of a broker-dealer. These so-called advisor‘s parent organizations seek to allow conflict-laden self-seeking behavior while weakening the fiduciary definition.
Sadly, regulation likely cannot solve this problem. There are no such things as “Fiduciary Rules” which can be mandated and monitored. The fiduciary standard is like the golden rule: do unto others as you would have others do unto you. We cannot define a set of golden-rule-approved behavior and a set of golden-rule-rejected behavior. Each situation calls for a slightly different response and the high moral principle of the standard must guide you.
Even if this proposed regulation is established, I do not expect SEC-mandated titling will save unsuspecting consumers from non-fiduciary financial professionals. Most consumers are confused enough that they won’t pick up on a slightly different title.
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