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Posts Tagged ‘Fiduciary’

How to Draw the Bright Line Between RIA Fiduciaries and Product Pushing, Conflicted Competitors

By Kathleen M. McBride, AIFA®

As hundreds of RIAs gather in Boston for Schwab’s IMPACT 2015, the news that some Congressional Democrats are joining Republicans in an effort to head off the administration’s fiduciary rule on retirement accounts underscores a political reality: broker-dealers, banks, insurance companies and mutual fund companies still wield enormous influence in Washington.

The brokers, banks, insurers and mutual fund companies will spare no expense to win regulatory cover allowing them to assert claims – however unfounded – that they, too, act in their customers’ best interest.  They will continue to spend millions to destroy or dilute the impact of the DOL fiduciary rules and head off or cripple similar regulatory initiatives at the federal and state level.  This fight will likely continue into the next Congress and administration, as well as in the courts.

As a result, efforts to strengthen fiduciary obligations of brokers and insurance reps will make progress but the regulatory outcome will fall far short of perfection.  The distinction between the fiduciary standard and suitability will get even fuzzier.  Dual registration will continue to confuse and confound clients.

What does this mean for RIAs?

First, RIAs cannot count on the regulators to draw a bright line between RIAs’ client-focused business model and that of their product-pushing, conflicted competitors. More than ever, RIAs will have to lean into differentiating and validating their firms’ commitment to fiduciary excellence.

Second, some forward-thinking competitors – among brokers, banks, insurance companies and mutual fund companies, are already working to build a more fiduciary culture and appropriate product offerings and compensation models.  Instead of a race to the lower standard, we may have an outbreak of higher standards among some key competitors.

The good news is that the national debate on this issue has shined a light on the value of working with a true fiduciary.  We know the fiduciary model works – for both clients and firms.  There’s already evidence that prospective clients are asking about firms’ standing as fiduciaries.

In this environment, RIAs have an opportunity to distinguish themselves and build their practices.  If you’d like to talk about how to achieve that goal, please come by Booth 144 at IMPACT, where I can be found with my colleagues from the Centre for Fiduciary Excellence – CEFEX – and fi360.

Kate McBride, AIFA®, founder of FiduciaryPath, LLC is an Accredited Investment Fiduciary Analyst®; a CEFEX analyst with the Centre for Fiduciary Excellence, auditing fiduciary firms’ investment fiduciary practices for certification; and a consultant on fiduciary matters. Ms. McBride serves as chair of The Committee for the Fiduciary Standardkmcbride@fiduciarypath.com.

Can Advise(o)rs Disclose Away Their Fiduciary Obligations?

Disclosure and its role in the advisory relationship became a major focus of panelists at a recent New York Society of Security Analysts/CFA Institute forum on “Wall Street’s Excesses: Bad Behavior and Over-Regulation.”  The topic surfaced in the first panel on enforcement, when the question was raised, “Can an advisor ‘disclose away’ her or his fiduciary obligations simply by surfacing all conflicts and fees?”

Blaine Aikin, chief executive officer of fi360 and a CFP board member, took up the question on our panel on the fiduciary standard: “The answer to the question can you disclose away a fiduciary obligation is that the devil is in the ‘can you?’  You could probably escape punishment, but is it acceptable under the fiduciary standard to ‘disclose away’ a fiduciary duty.  The answer is clearly ‘no.’”

“Disclosure is not a substitute for fulfillment of the duties of loyalty and care.  We have gaping holes in the way that the law is enforced today. [That’s why upholding professional standards] becomes a critical function for organizations like the CFA Institute and the CFB Board.”

“With the CFP Board, you have a disciplinary process that brings [certificate holders] before professionals in the field. If you have people who are well informed in terms of the obligations that are involved – which you do in the disciplinary process of the CFP board – then you apply those standards in a way that understands that you can’t ‘disclose away’ professional liability.”

For my part, I noted studies by such leading academics as Prof. Daylian Cain at Yale School of Management, which indicate that disclosures can have a perverse effect.

According to Prof. Cain’s research, when an advise/or makes a disclosure to an investor – even a well-meaning advise/or – the investor feels more confident that the advise/or is being forthright and is thus less likely to question that advice.  Moreover, the advise/or is more likely to give more aggressive advice that may tilt more to the advisor’s interests than those of the investor.

Bottom line: Disclosure and transparency are important but certainly no substitute for holding all advise/ors – registered reps, insurance agents and RIAs – to a strong fiduciary standard of care.

Kate McBride, AIFA®, founder of FiduciaryPath, LLC is an Accredited Investment Fiduciary Analyst®; a CEFEX analyst with the Centre for Fiduciary Excellence, auditing fiduciary firms’ investment fiduciary practices for certification; and a consultant on fiduciary matters. Ms. McBride serves as chair of The Committee for the Fiduciary Standardkmcbride@fiduciarypath.com.