Legislation and Rulemaking
Op-Eds and Commentary
Institute Research Associate – Darren Fogarty
Darren Fogarty is a Master’s student at the Nicholas School of the Environment at Duke University, where he studies Environmental Economics. He sees this as complementary to the work he does for the Institute, where his passion for sustainability takes the form of promoting and preserving the principles which uphold the capital markets.
Darren also works as a copywriter for an employee benefits advisory firm in Phoenix, Arizona, where he helps employers in distinguishing brokers from advisors in the benefits and healthcare arenas. He received a Bachelor of Arts from UNC Greensboro, where he studied Economics and Environmental Studies, and has studied at Georgetown University in Washington, D.C. and Aarhus Universitet in Aarhus, Denmark.
SEC Office of the Investor Advocate / RAND study offers new insights into retail investor, financial reps misunderstandings of brokers and advisers; study offers guidance for Reg BI
by Knut A. Rostad and Darren M. Fogarty, Published on November 9, 2018
The RAND 2008 study, Investor and Industry Perspectives on Investment Advisers and Broker-Dealers, documented that many retail investors fail to understand how brokers and advisers differ.1 The Office of the Investor Advocate / RAND 2018 study (OIAD), The Retail Market for Investment Advice, seeks to “determine how well investors understand the retail market for investment advice and to identify and test actionable policy innovations.” 2 OIAD reaffirms Key RAND 2008 findings. It also offers new insights to better explain retail investor misunderstandings as result of industry and regulatory communications, and to provide guidance for the SEC’s Reg BI.
by Knut A. Rostad and Darren M. Fogarty, Published on June 12, 2018
In 2016 and 2017, the Consumer Federation of America reported in three separate comment letters that 34 financial firms changed their products and/or product offerings to comply with the DOL Fiduciary Rule. They did so against a backdrop of industry criticism that the Rule would be harmful not only to their own business models, but to their customers and clients as well. Some of the very same firms heftily contributed to that backdrop. However, in announcing their new products and offerings, many of these same firms reversed their position on the impact on investors. Now, they believe such changes are overdue, prudent, and beneficial to customers. Why the switch? And will such product improvements survive the recent vacatur of the DOL Rule? Time will tell.
by Darren M. Fogarty, Published on April 5, 2018
The mere presence of an observer, while an individual is reading a disclosure, can impede their ability to make informed decisions, while mandatory waiting periods have a positive effect on consumers’ ability to make informed decisions. Here the Institute summarizes this research.
2018 First Quarter Commentary
by Knut A. Rostad, Published on March 26, 2018
Recent regulatory and industry actions on fiduciary have come fast and furiously. Unfortunately, they are mostly bad news for investors. The exception: actions in the states. The takeaway: Investors are on their own to identify real fiduciary advisors, who are also on their own to stand apart from brokers. The Institute’s Best Practices and the Campaign for Investors are more important than ever. Here’s an update on these actions and what they mean.
Managing Conflicts and CFP Board’s Revised Proposal on Professional Standards
by Knut A. Rostad, Published on February 2, 2018
The Board has a unique opportunity to set a true fiduciary standard, and seize the moment to benefit generations to come. In the attached letter to the SEC from the Institute, we provide further steps and protocols to manage and neutralize conflicts impact. We urge the Board to apply them.
Adviser and Broker Dealer Standard of Conduct
by Knut A. Rostad, Published on January 26, 2018
Adviser and Broker Dealer Standard of Conduct: For generations, the Advisers Act of 1940 has served well as a “contract” between advisers and their clients. The Commission’s rulemaking here effectively puts this “contract” under review and renewal.
“Money is the new sex, the thing people don’t talk about.”
by Knut A. Rostad, Published on October 31, 2017
Mark Tibergien, CEO, Pershing Advisor Solutions, has been a thought leader in the business of advice for 30 years. Investment Advisor readers voted Tibergien the most influential leader in the advisory space earlier this year. Speaking with Knut Rostad, Tibergien expresses views that RIAs usually discuss privately. Examples? RIA standards are too low. The RIA voice is fragmented and brand is unclear. Tibergien also notes consumer distrust harms RIA recruitment and growth. To cap off, “Money is the new sex, the thing people don’t talk about.” A Freudian slip? Read on.
Proposed Code of Ethics and Standards of Conduct to CFP Board of Standards
by Knut A. Rostad, Published on September 21, 2017
The proposed standards move financial planners towards professionalism on a number of fronts. Two stand out. One, in a sharp departure from the current standards, all CFPs who render financial advice are held to fiduciary conduct. Two, in the proposed standards conflicts begin to be addressed.
Daylian Cain NYU Presentation
by Daylian Cain, Published on June 3, 2016
Yale business professor, Daylian Cain, is a prolific researcher on conflicts of interest. His notoriety in investment advice policy circles was further enhanced when the Obama administration cited his work in 2015, as it argued for the DOL Conflicts of Interest Rule.
In June 2016, Cain offered a quick (seven minute video) synopsis of his thinking. The video can be found here.
One key point in professor Cain’s synopsis highlighted in this one-page summarydeserves special attention. It underscores why a policy of avoiding conflicts is far superior to a policy of accepting and disclosing conflicts. The point is the potential impact of conflicts on everyone. As Cain notes, “Yet, (its not just the bad apples)… normal people are also capable of really bad behavior.”
The Fiduciary Structure of Investment Management Regulation
by Arthur B. Laby, Published on April 21 2017
Investment managers owe fiduciary duties to clients, including the duty of loyalty and the duty of care. A persistent question, with no clear answer, is what precisely is required by the duties of loyalty and care. In this paper, I argue that much of investment management regulation is a response by regulators to the uncertainty inherent in the fiduciary obligation. Regulators design investment management rules to guide managers regarding the proscriptions imposed by the duty of loyalty and the diligence required by the duty of care. Regulators, acting through agency rulemaking and enforcement actions, are attempting to specify what precisely is required of investment managers in the context of exercising their fiduciary obligation to clients. Viewing investment management law as I propose here leads to an important insight about the law, and it challenges an alternative view of the fiduciary obligation. Some writers claim that detailed conduct rules effectively displace fiduciary duties. By contrast, I argue that, far from being an alternative to fiduciary duties, investment management law and regulation serves to explicate what the fiduciary obligation entails. Rules prepared by regulators governing the investment management industry are not a substitute for a fiduciary duty; they compose its essence.
Fiduciary: A Historically Significant Standard
by BLAINE F. AIKIN, CFP®, CFA, AIFA® & KRISTINA A. FAUSTI, J.D., AIF®, Published on September, 2013
In July 2010, the U.S. Securities and Exchange Commission (“SEC”) began the process of conducting a study on the effectiveness of the standards of care for broker-dealers and investment advisers.
Restoring Investor Trust in Wall Street, with Broker-Dealers and Investment Advisers
Published on September 8, 2014
Fiduciary September 2014 Special Webinar with five panelists: John Taft (JT), RBC Wealth Management, Michael Falk, Focus Consulting Group
, Jack Waymire, Paladin Registry, David Armstrong, WealthManagement.com, and Knut A Rostad (KR), Institute for the Fiduciary Standard
Why Avoiding Conflicts of Interest Matters
by Knut A. Rostad, Published on July 7, 2017
Advisor DNA found in the Advisers Act of 1940 and championed for generations is objective advice. Yet, some reject this bedrock principle.
CFPB Standards: “The Ethical Foundation for CFP Certifications”
by Knut A. Rostad, Published on June 14, 2017
CFPB is reviewing its “Ethical foundation for CFP certification.” This review is timely. The advice market is undergoing a basic transformation. New technologies, the DOL Rule, more demanding investors and lowering costs are change agents. Higher ethical standards are in demand. CFPB should answer the call and lead.
What Investors Can Learn About An Advisor’s Conflicts in Form ADV: ‘But Were Not Sure How to Ask’
by Knut A. Rostad and Darren M. Fogarty, Published on September 12, 2016
RIAs DNA of objective investment advice is embedded in the Advisers Act of 1940. What’s often over-looked, however, are differences among RIAs on measures in the Adviser’s Form ADV that serve as ‘fiduciary indicators’. The research identifies some of these indicators and explores some of these differences.
What is “Good Advice”?
by Knut A. Rostad, Published on May 23, 2016
Questions of good advice and financial planning are timely. 2016 will initiate the DOL COI Rule era, 76 years after the Advisers Act of 1940, and 47 years since the “birth” of financial planning. And timeless. The force behind the DOL rule reflects the “shared mission” and question that attracted the financial planning founders in 1969: Can advice replace sales as the industry “driving force”?
Fiduciary Duties Advanced in 2015; 2016 Will Reveal How Much These Gains Are Secured – Or Not
by Knut A. Rostad and Darren M. Fogarty, Published on January 28, 2016
Winning the fiduciary “Debate” in 2015 was vital… and insufficient. The future of advice depends on how Fiduciary Duties and “Best Interest” are defined by regulators and advisors. History, law, research and common sense suggest that a stringent definition is necessary.
Conflicts of Interest and the Duty of Loyalty at the Securities and Exchange Commission
by Knut A. Rostad, Published on September 17, 2015
Recently, Securities and Exchange Commission (SEC) Chair Mary Jo White said she supported the SEC moving ahead with a uniform standard for broker-dealers and investment advisers. Knut Rostad’s paper is published here in the September issue of The Investment Lawyer.
Investment Advisers Act 75th Anniversary – Statements from Industry Leaders and Experts
by Industry Leaders Arthur Levitt and David Tittsworth, Published on September 8, 2015
The Investment Adviser Association (IAA) asked a number of industry professionals, regulators, and other experts to share their views on the value the Investment Advisers Act has brought, and also asked them to forecast what lies ahead for the Act and its founding principle, the fiduciary duty. The Institute includes two responses, one from former SEC Chairman, Arthur Levitt, and the other from former IAA CEO, David Tittsworth, because they focus sharply on the challenge confronting the SEC regarding fiduciary duty and why this highest standard matters to investors. Below are the transcriptions of their video responses.
SEC Commissioners Luis A. Aguilar and Daniel M. Gallagher on Fiduciary Duty
by Knut A. Rostad and Darren M. Fogarty, Published on September 8, 2015
SEC Commissioners Luis Aguilar and Daniel Gallagher have announced they will leave the SEC when their replacements are selected.1 Commissioner Aguilar has served seven years and Commissioner Gallagher almost four. The Commissioners depart at a time – in the midst of recent statements of SEC Chair White on the status of rulemaking at the SEC and the DOL proceeding with the Conflict of Interest Rule — of unprecedented focus on fiduciary duties. This focus reveals sharply different visions. The commissioners’ departure is an appropriate time to assess their views.
Institute for the Fiduciary Standard/WealthManagement.com September 2015 DOL Conflict of Interest Survey
by the Institute for the Fiduciary Standard and WealthManagement.com, Published on September 2015
DOL Conflict of Interest Survey
Statement of Knut A. Rostad On “Best Interest” and SIFMA’s “Proposed Best Interest of the Customer Standard For Broker-Dealers”
by Knut A. Rostad, Published on June 9, 2015
The “Best Interest” standard is central to the regulation of advisers and brokers. It’s key to the DOL COI proposed rule and recent SEC statements and decisions. Now, a Securities Industry Financial and Markets Association (SIFMA) statement discusses conflicts of interest, disclosure and fee transparency. Despite its obvious importance, federal policy makers and regulators still have not affirmed or promulgated a view of the “Best Interest” standard as drawn from the Advisers Act and common law.
Conflicts of Interest and the Duty of Loyalty at the Securities & Exchange Commission
by Knut A. Rostad, Published on April 6, 2015
SEC Chair Mary Jo White’s recent statement that the SEC should proceed with rule-making on a uniform fiduciary standard focuses attention on what such a rule may entail. Recent SEC decisions, statements from senior staff and commissioners and statements from former SEC staff and commissioners provide bold lines of a clear picture of the SEC’s view of the duty of loyalty. These bold lines suggest traditional views that conflicts of interest are inherently harmful and should be avoided have altered. Instead they depict a new and benign view of conflicts. A view that holds that conflicts are routine and acceptable — not inherently inconsistent with providing objective advice.
Key Principles for Fiduciary Best Practices and an Emerging Profession
by Knut A. Rostad, Published on September 10, 2014
Fiduciary law is complex in its nuances and structures; fiduciary principles are not so complex. Instead they reflect the wisdom of Emerson, who noted, “Nothing is more simple than greatness; indeed, to be simple is to be great.” So it is with principles on which fiduciary best practices and an emerging advisory profession must rest. This paper notes the attributes of character, suggests relevant operating principles or premises for best practices based on these attributes, why these principles matter, and how they starkly differ from principles underlying common brokerage sales practices aggressively advocated by brokerage lobbyists. Throughout, the simplicity of these principles and their meaning to investors stand out.
Professional and Personal Financial Planning
by Jeffrey W. McClure, Published on May 16, 2014
An excellent paper on the origins, meaning and importance of professions, and the status of financial planning as a profession.
Fiduciary Institute to Craft Fiduciary Best Practices that Investors Want
Published on May 13, 2014
The Institute for the Fiduciary Standard today announced the formation of
a Best Practices Board to craft fiduciary best practices for investment and financial advisors.
Six Core Fiduciary Duties for Financial Advisors
by Knut Rostad, Published on September 9, 2013
The Six Core Fiduciary Duties embody the major elements of fiduciary responsibility under the Advisers Act of 1940.
SEC release offers little medicine to quell conflict-of-interest “virus’
by Knut A. Rostad, Published on June 11, 2013
Note: this op-ed, written by Institute for the Fiduciary Standard President Knut Rostad, is published on InvestmentNews.com.
Fiduciary Reference – Analysis of Investment Fiduciary Issues
by Knut A. Rostad, Published on April 16, 2013
The SEC March 1 Release* assumptions about a possible uniform fiduciary standard and the duty of loyalty sharply restrict when fiduciary duties are applied. If these assumptions are adopted in rulemaking, fiduciary duties would effectively be removed for brokers and advisers giving investment advice to retail investors.
The Fiduciary Obligations of Financial Advisors Under the Law of Agency
by Robert H. Sitkoff, Published on March 19, 2013
Whether a financial advisor is an “investment advisor” or a “broker” (or neither) under the federal securities laws, an advisor may be an agent under the common law of agency. In such situations, for example the situation in which the financial advisor has discretionary trading authority over a client’s account, the advisor is a fiduciary who is subject to the fiduciary duties of loyalty, care, and a host of subsidiary rules.
Selling Advice And Creating Expectations: Why Brokers Should Be Fiduciaries
by Arthur B. Laby, Published on December 2012
While both investment advisers and broker-dealers provide advice about securities, only advisers are subject to a fiduciary standard to act in their clients’ best interest. Brokers, meanwhile, are subject to a less strict suitability standard. Because investors reasonably expect that brokers will in fact operate in a fiduciary capacity, the SEC should impose a fiduciary duty on brokers that give investment advice.
Why Capitalism Has an Image Problem
by Charles Murray, Published on July 2012
Capitalism has played an important role in world history generally and in American history in particular. Nevertheless, today many Americans view capitalism with suspicion or even hostility. What’s needed is a remaking of the case for capitalism, which itself requires a restatement of capitalism’s old truths.
The Scandal Behind the New Financial Scandals
by Francesco Guerrera, Published on July 2012
Recent scandals, such as the controvery over Libor and the failure of the brokerage firm Peregrine Financial Group, underscore the severe problems within the financial industry. Such controversies have led savers to withdraw hundreds of billions of dollars from equity mutual funds. Are these events the new normal or are we at a breaking point?
A Discussion of Some of the Differences Between the Regulatory Requirements of Brokers and RIAs
by Knut A. Rostad, Published on April 11, 2012
A discussion of the differences in the standards of investment advisers and brokers is essential amidst the calls for “harmonizing” the two. This paper seeks to highlight how these two standards differ in terms of the legal requirements and duties imposed on advisers and brokers.
Rulemaking Re: Brokers, Dealer and Investment Advisers
by Knut A. Rostad, Published on April 9, 2012
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.
How to Choose a Financial Planner
by Allan Roth, Published on March 2012
Knowing how your financial advisor makes money can help you, the consumer, make a well-informed decision. This article attempts to arm consumers with tools they can use to get the best money advice possible.