You have probably heard some of the uproar surrounding a proposed rule that would define fiduciary standards for both broker-dealers and advisers uniformly. Currently, advisers are held to a higher fiduciary standard under the Investment Advisers Act of 1940 than broker-dealers, who are held to a mere “suitability” standard under the Securities Exchange Act of 1934. While advisers have to put the client’s interests first, broker-dealers merely have to sell products that are suitable–and often the most lucrative to sell, as well.
The Department of Labor enforces ERISA, and four years ago they proposed a rule that would define anyone helping people save through a retirement account as a fiduciary. Although that rule was scrapped, they have just sent another one to the Office of Management and Budget, who has up to 90 days to review it before releasing it to the public. Dodd Frank required the SEC to do a study on a uniform definition of fiduciary standards, which they released back in 2011. Turns out, while the Department of Labor and the White House would love to force agents and broker-dealers to operate under the same standards that fiduciaries do under the Advisers Act, the SEC is not on the same page. The 5 commissioners still are not convinced there is any need for rulemaking here, and one of the Republican commissioners, Daniel Gallagher, fired back at the White House for leaking a memo recently designed to gain support for the DOL rule proposals making stockbrokers fiduciaries, just like their cousins in the advisory side of the business.
Some have stated that the brokerage industry’s lobbying group SIFMA opposes any changes to fiduciary standards. Actually, they support a standard–as long as it’s fair and does not hold brokers to the same fiduciary standards required of investment advisers.
How do I feel about the whole thing? That it’s totally unnecessary. That investors have to pay for advice somehow, and that I myself save untold thousands using a broker-dealer (whom I never talk to) as opposed to giving up, say, 1%, of my account value for someone to take over and start driving with discretion. In other words–investors need different options. Many individuals in a 401(k) account would benefit from talking to a financial planner. Others might need a portfolio manager. And still others–like myself–know what they want to buy and just enter their orders online through a broker-dealer who gives NO ADVICE whatsoever and simply executes trades with accuracy and competence while maintaining custody of assets. Why not give investors as much choice as possible? Because this White House and its Cabinet are often unable to trust the intelligence of the typical American, who if left to his or her own devices would be doomed. Of course, I have a conflict of interest here–if a rule goes out requiring all Series 6 and 7 reps to also get their Series 65 or 66, this would be a major financial benefit to Examzone. But, still, the whole thing seems like more effort than it’s worth to me.

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