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The Brokerage Industry’s “Muddle” Strategy

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This article originally appeared on Advisor Perspectives by Knut Rostad.

July 4 reminds us of how the American experiment started. That stands in startling contrast to the SEC’s experimental standards.

The rule-making standards the SEC set on June 5 was transformational. Broker-dealer (BD) sales rules replaced investment advisor fiduciary duties on the federal throne, regulating “trusted advice” for retail investors. It’s a clear power shift, years in the making, and BDs are energized. They’re wasting no time brandishing their new ascendency over RIAs.

Take John Taft, vice chairman of Baird and former chair of the Securities Industry and Financial Markets Association (SIFMA). He’s the architect of SIFMA’s July 2011 blueprint for a best interest standard and a seasoned Washington lobbyist. Taft wrote in Investment News that brokers must, “mitigate and in certain cases eliminate” financial conflicts and that “this is truly a best-interest standard with real teeth.”

Wrong.

Mitigation is not required by the rule. BDs are required to have policies to identify if conflicts merit mitigation. Yet, actual mitigation is only called for if, and only if, the BD itself finds it is appropriate.

Read the rest of the article on Advisor Perspectives.

Dan Moisand

 

Dan Moisand is a nationally recognized fiduciary fee-only financial planner, an Institute Real Fiduciary™ Advisor and Chair-elect of the CFP Board.

The Institute has enshrined the ‘Moisand Rule’ on fiduciary practices. It is basic and is more important today than ever: “You have to avoid conflicts. If I avoid a conflict, I don’t worry about it.”

Watch the video of Moisand speaking here.

Bob Veres

 

Bob Veres is a long term observer of financial planning. His Newsletter, “Inside information” Is a staple of leading planners. In the May edition he writes about fiduciary and the Institute.

"But a much bigger point is that the fiduciary standard—as Knut Rostad of the Institute for the Fiduciary Standard has pointed out—has been determined by the Supreme Court (1963 ruling) to be at the very heart of the Investment Advisers Act of 1940. It is the foundation of what it means to be an RIA registered with the SEC instead of a tipster or a tout."

- Bob Veres, Parting Thoughts ... The SEC's Own Compliance Culture