Industry professionals and scholars have teamed up to launch the
Institute for the Fiduciary Standard, a new nonprofit organization dedicated to advocating for the uniform
adoption of the fiduciary standard. ("Fiduciary Standard Gets Powerful
InvestmentNews, Aug. 28, 2011).
"Misunderstandings abound about what "fiduciary' means,"
Knut Rostad, president and a founding member of the Institute for the
said in a statement. "The institute provides a permanent platform to build a full program
of advocacy and education on this important public issue."
The Institute's launch is yet another development in the heated debate
over whether broker-dealers should be held to the same standard of care
as investment advisers - a standard of care that includes providing guidance
based on the clients' best interests, and disclosing all material
conflicts of interest.
Generally, unlike investment advisers, broker-dealers are held only to
a standard of suitability, which translates into a significantly lower
standard of care - one that investors don't always understand.
"The suitability standard allows brokers to conceal most conflicts
of interest from their clients and to escape any obligation to control
investment expenses," Mr. Rostad wrote in a
letter to the Editor of the NY Times. "For example, brokers do not have
to tell a client when they are compensated more for selling certain products
than others. Worse still, they aren't obligated by law to recommend
the lower cost of two products with equivalent investment characteristics
and comparable performance records."
recommended the adoption of a universal fiduciary standard in January. Less than two
months later, the U.S. Department of Labor proposed applying the fiduciary
standard to IRAs, a change that would greatly expand the number of financial
professionals who would be considered "fiduciaries." (For more, read
our March 9 blog post.)
Unfortunately for investors - who would greatly benefit from the expanded
application of the standard - those opposed to the universal fiduciary
standard have been as vocal and adamant in their opposition as the SEC
and investor advocates have been in their support. A fact that only points
to the need for a newer and more powerful advocate.
The Institute plans to meet with varying governmental authorities, including:
members of Congress, the SEC, and the Labor Department, throughout the
next few "critical" months and beyond. A Sept. 9 panel discussion
on disclosure rules has already been scheduled.