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Expanding the Fiduciary Standard

The debate over the expansion of the fiduciary standard to broker/dealers is multi-faceted. A couple of weeks ago, I wrote about a study that showed that a fiduciary standard imposed on brokers would not, as the brokerage industry claims, cost investors more and would not limit a brokers’ ability to serve their clients.

A similar argument was made in a recent letter sent to the Securities and Exchange Commission. The letter was written by several agencies, including the CFP Board, AARP, NAPFA, and the Financial Planning Association. And these agencies, in making their argument, may have come to something of a turning point in the fiduciary debate.

Their point is simple: the fiduciary standard, at its heart, is about the highest standard of care in investment advice. And the enforcement of the fiduciary standard is ultimately about the oversight of that investment advice. And the standard, along with broker sales practices and commissions, can coexist: “the fiduciary duty is fully consistent with sales-related business practices, including receipt of transaction-based compensation, sale of proprietary products, and a sale of limited menu items”. And the agencies collectively “support the extension of the fiduciary duty to all broker/dealers when they offer personalized investment advice”.

In other words, let brokers be brokers. Brokers can sell investments and earn a commission without violating the fiduciary standard. That’s because earning a commission by selling products doesn’t automatically mean giving investment advice. If a broker is only operating as a salesman, and is not dispensing any personalized advice, the fiduciary standard has not been failed. Let brokers sell products…that’s what they do. And let investment advisors dispense investment advice. And only “to the degree that brokers and advisors are engaged in identical conduct, they should be subject to identical standards”.

I think Michael Kitces put it best: this debate is framed around what sort of standard brokers and advisors are held to, but its also really about sales vs. advice. If advisors are giving their clients investment advice, they are subjecting themselves to the fiduciary standard. But if all a broker is doing is selling something for commission, let it be.


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