Article originally appeared on Advisor Perspectives

The Supreme Court held in 1963 the fiduciary standard is the bedrock of the Investment Advisers Act of 1940. Now, however, the SEC staff has issued a statement saying to investment advisers that their fiduciary status is “extraneous.”

This opinion is stunning but unsurprising. For more than 20 years, broker-dealers have advertised that they provide ”trusted advice” (read: fiduciary) but have vigorously opposed being held to a fiduciary standard. Indeed, they have erased the line between fiduciary advice and brokerage trading or product distribution.

The result has been a bamboozled and befuddled marketplace that financial planner Dan Moisand called a “freak show” in 2018.

This latest SEC staff intervention effectively said, ”Forget the Supreme Court and prior SEC opinions. We have a better idea.” The idea is that, since broker-dealers reject the higher fiduciary standard, investment advisers must do likewise. They must tell investors they meet the lower broker-dealer conduct standard.

If SEC’s dictum were a piece of congressional legislation, it could be called ”The Equity in Conduct Standards Act, 2022.”

The SEC chair and its commissioners today are the most fiduciary-centric in the last 25 years. Yet, on March 30, the staff said the word fiduciary is out on Form CRS. CRS is a two-page disclosure that is meant to help investors tell the difference between brokers and advisers.

Instead, the SEC staff said brokers’ and advisors’ best interest duty is in. The specific language from the SEC is as follows: “The instructions require firms to provide a consistent articulation of their required legal obligations using the prescribed language statement in item 3.B.(i) to minimize investor confusion …”

The prescribed language describing the legal obligations of investment advisors and broker-dealers is identical: “We have to act in your best interest and not put our interest ahead of yours.” This means advisors and brokers must render advice, care and competence at the same standard. There must be equity.

The SEC’s rationale, according to its statement, is that declaring uniformity in advisor and broker standards will “minimize investor confusion” while telling investors the truth about their different legal roles and business purposes is, apparently, deemed misleading or inaccurate.

Thus, the staff declared that the word fiduciary is “extraneous” in describing an investment advisor.

The meaning of extraneous is clear; from the Cambridge dictionary: “Not directly connected or related to a matter being considered;” Websters: “Not forming an essential or vital part” or “Having no relevance”.

The staff was also clear and stated that it, “cautions against an investment adviser using the term ’fiduciary’ or ’fiduciary duty’ where doing so would be extraneous or unresponsive to the particular item … any use of the terms must be accurate and not misleading.”

For example, the SEC staff stated that “embellishing factual statements” will likely be deemed “inappropriate” by the staff.

Further, in a footnote the staff explained that disclosure that is “impermissible, extraneous or unresponsive” can “make it harder for the investor to focus on the key information.”

The staff continued, “Phrases such as, ’An investment adviser who is held to the fiduciary standard’ is likely to be inappropriate.”

This, to be clear, is a staff opinion and is not the same as a commission ruling. The staff noted on the FAQ that their views, “Represent the views of the staff of the Division of Investment Management and the Division of Trading and Markets. They are not a rule, regulation, or statement of the Securities and Exchange Commission (’Commission’),” and, according to the staff, “have no legal force or effect.”

Staff opinion is serious and is read closely by securities attorneys and compliance consultants. The staff’s opinion on Form CRS is stunning in its raw abuse of legal reasoning, precedent and common sense. It effectively reverses the Supreme Court Capital Gains decision and prior SEC opinions with respect to the need for advisors to provide fiduciary care.

This opinion betrays independent investment advisors. Those advisors have built firms around the fiduciary ethic to offer a client-centric standard. That standard demands greater transparency and that conflicts be eliminated if at all possible. That standard was inherent in the ’40 Act because of the hard lessons of the stock market crash during the Depression. Let’s not invite a replay.

This staff opinion must be overridden by the commissioners who understand the havoc it will wreak.

Article originally appeared on Advisor Perspectives