Last week witnessed a number of thought provoking and important commentaries that raise important questions on the status of investor trust — and what to do about it.
Sunday. One-man think-tanker Ron Rhoades provides a detailed legal analysis of the background on the facts and circumstances determining the presence of fiduciary status, as a preface to commenting on CFP Board’s explanations for applying fiduciary status.
(This piece follows a recent piece by Allan Roth in the Wall Street Journal questioning CFP Boards handling of a case brought against a CFP certificant and a piece by Andy Gluck that questions CFP Board’s “definition” of fiduciary.)
Rhoades zeroes in on CFP Board’s claim that “financial planning or material elements of financial planning” must be present and that a certificant who only engages in one of the six subject areas of financial planning is not likely to be engaged in “material elements” of financial planning and is, according to CFP Board, not to be considered a fiduciary. Rhoades stresses this emphasis on “one subject area” and “material elements” has no basis in law, and appears to contradict legal precedents which indicate, according to Rhoades, that the provision of any advice “will likely give rise to the application of fiduciary status under state common law.”
Reconciling CFP Board’s definition of fiduciary status with state common law is a serious matter. Yet, Rhoades may raise a more serious question. That is: is CFP Board advertising misleading? In fact Rhoades asks: “Fraudulent advertising by CFP Board?” CFP Board’s advertising campaign suggests, Rhoades notes, that all CFPs are fiduciaries at all times. This suggestion seems to stand four square against the core CFP Board view noted above, that in the opinion of CFP Board, by design and intent, all CFPs are not fiduciaries — fiduciaries as defined by CFP Board — at all times.
This is arguably a more serious charge because it raises fundamental questions of judgment, ethics, and law. It raises questions of precisely how CFP Board applies the fiduciary standard to advance the profession. It raises the question of trust.
I asked CFP Board to respond to the Rhoades critique. Dan Drummond from CFP Board wrote:
“Thanks for reaching out to us. We are aware of and read with great interest Ron Rhoades, CFP®’ thoughtful piece with regard to CFP Board’s fiduciary standard. Mr. Rhoades makes some very interesting points that undoubtedly will engender further conversation on this important subject. I would note that CFP Board’s standard has been the subject of considerable discussion within the industry since CFP Board broke ground in 2007 by requiring all CFP® professionals to be held to a fiduciary standard when providing financial planning services. CFP Board will continue to rigorously enforce all of our standards and in concert with our Financial Planning Coalition partners, will continue to advance our public policy efforts to encourage the SEC to create a rule that extends fiduciary standard to broker-dealers who provide retail investment advice. We value input from our CFP® professionals and the public.”
Tuesday. At the Tiburon Strategic Advisors CEO Summit (where I spoke on the precarious status of the fiduciary standard) Tiburon CEO, Chip Roame, opened the conference of some 200 C-level execs with a broad-based and detailed (114 slides) presentation on “The Future of Wealth Management.” In this presentation, Roame covered the state of consumer wealth and baby boomer financial behavior, and industry stumbles and scandals. Here Roame said some things we usually don’t here at industry conferences from industry leaders. One, Roame opined that consumers generally view the whole industry as “appalling” and two, consumers do not distinguish between good and bad guys. Or, “The whole industry is evil.” Consumers do not pick out certain industry participants and just blame these firms. Consumers blame all the players. Take away: this is everyone’s problem.
Friday. The Museum of American Finance (MOAF) holds a symposium to commemorate the 25th Anniversary of the Crash of 1987 and the museum’s founding. The Institute for the Fiduciary Standard partnered with MOAF on this important event. The symposium theme: “Restoring the Faith of Investors.” Industry stalwarts Jack Bogle, John Rogers, TIAA-CREF CEO, and NYSE CEO, Duncan Niederauer offer their views in interviews with, respectively, Consuelo Mack, Maria Bartiromo and Jason Zweig. Their messages on restoring faith? Bogle underscored the importance of enacting a federal fiduciary standard; Niederauer stressed the need for greater transparency; Ferguson spoke about the need to restore good governance to these institutions, long-term thinking and getting institutions to put investors’ interests first.” MOAF President, David Cowen noted, “Just like the 1987 crash, the nation is again grappling with the important issue of investor confidence and we appreciated the candid interviews and discussion. We thank the New York Stock Exchange for hosting the event.”
In just these few examples, (there may have been others from last week I missed) the backbone of the free market economy and financial services system — investor trust — recieved much deserved attention from industry leaders. This is good and this is important. There should be more attention, and even more action.
President, Institute for the Fiduciary Standard