Thursday, August 19, 2010

SEC Comment on the Fiduciary Problem

In the United States the financial services industry and the many associations which represent its salespeople, such as the CFP Board, have been pressing for an amorphous financial standard which would apply to all advisors without respect to how many conflicts of interest they have.  An actual discussion of true fiduciary duty is not allowed on the table, because fiduciary duty does not allow any conflicts of interest.  Even with the financial standard smoke screen, the salespeople protest they cannot understand what it is and how it could be applied and the public needs to practice caveat emptor.  Present securities law, rules, and regulations favor salespeople over fiduciary advisors and purposefully confuse the public as to who is who and what they do.

The new financial reform legislation which passed Congress kicked the fiduciary question down the street and required the SEC to study what, if any, fiduciary requirements should be placed on salespeople, advisors who sale, and advisors who do not sale (this later category is not a popular subject on Wall Street or in insurance companies).  Comment on this subject ends August 30 and you can read comments on file here.  The transparency of designations which clearly communicate to the public who is who and the level of fiduciary responsibility or actual fiduciary duty are long overdue.  Even the associations confuse the issue.  For instance, NAPFA holds itself out as an association of fee only advisors, but the majority of its members are salespeople who appear to provide the bulk of the association's revenue.  Besides an initial and annual membership fee, the requirement to become a fee only advisor member includes submitting a fictional financial plan consistent with the example plan sent to prospective members.  How hard can that be?  Yet, many lazy news organizations and writers fail to do the research and think this is the source for fee only advisors, when it actually has a very small percentage of actual fee only advisors as members.  A clear SEC designation would clear this mess up and make a lot of these self-serving associations redundant.

I have previously written on the need for a two years master's degree program for fiduciary advisors and have been working on a curriculum program.

Here is the comment I sent the SEC:

Comments on File 4-606
In the United Kingdom, Canada, and Australia it is now illegal to give financial advice and sell products and the regulations being phased in, because the two activities are ethically incompatible.
In the United States, the discussion of true fiduciary duty in which there are no conflicts of interest, as above, has not been publicly allowed, as salespeople and the organizations and associations which represent them are committed to the existence of "unavoidable" conflicts of interest and the promotion of a "fiduciary standard" which would put wolves in sheep’s clothing and continue the confusion of the public as to who is who as a commissioned advisor, fee-based, or fee-only. In fact current SEC law and rules and regulations allow financial advisors, with Broker-Dealer relationships, and advisors who accept fees from sources other than clients and/or soft money or services from a Broker-Dealer to legally call themselves fee only advisors. This confusion is purposeful and serves the best interests of salespeople.
I have previously published, prior to the passage of the new financial reform bill, a criticism of the current regulatory process and need for clear designations under the title of "Fiduciary Responsibility vs. Fiduciary Duty" which was published nationally by Advisor Perspectives
and also here.  It is time for public transparency, clearly delineated advisor definitions, and appropriate fiduciary responsibility salesmen and conflicted advisers distinguished from the fiduciary duty of a true fee only advisor with no conflicts of interest.
That article reads as follows:

I included the text of the "Fiduciary Responsibility vs Fiduciary Duty" article above as the SEC comments page recognizes no links in my comment.

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