Contrary to what some of the critical comments received by the DOL/EBSA suggest, fiduciary duties are neither too “ill-defined” nor “vague” to be applied to investment advisory activities. Such duties have been applied to other professionals for centuries. Additionally, there is a significant body of case law applying fiduciary duties of due care, loyalty, and good faith upon the activities of investment advisers (both at the federal and state level).
Legislation and Rulemaking
On July 14, 2011 SIFMA submitted comments to the SEC on a proposed framework for establishing a uniform fiduciary standard of conduct for broker-dealers. SIFMA’s proposal departs from the fiduciary standard as set forth under the Advisers Act of 1940 and, if adopted, would be particularly harmful to retail investors.
Disclosures and client consent are insufficient – by themselves – to satisfy the fiduciary standard. Investors must be able to rely on and have confidence in the expertise of their advisor. This can only be accomplished by applying a standard that prohibits all conflicts of interest.
Rulemaking – The Commission may commence a rule-making, as necessary or appropriate in the public interest and for the protection of retail customers, to address the legal or regulatory standards of care for brokers, dealers, investment advisers, persons associated with brokers or dealers, and persons associated with investment advisers for providing personalized investment advice about securities to retail customers.
Former Chairman Levitt testifies to the Senate in 2008 that the SEC can build market trust. His counsel is more pertinent today.
Many people have asked about the origins of the “Butcher versus Dietitian” white board video recently popularized by Hightower Advisors and Tony Robbins. Its an excellent video, no doubt. Full disclosure, the first rendition of this story line to explain the differences between a broker and investment adviser in recent times (that I am aware of) was actually ten years ago when Harold Evensky and I collaborated on the idea in a different format and medium. Click the link above to see the PSA and news release. Knut