Consider the following quote from Ira Hammerson, general counsel for the Securities Industry and Financial Markets Association (SIMFA), given to the Investment News in July 2011, "Don't let anyone convince you that brokers are trying to water down and have a shortcut to a fiduciary standard." Seriously? I can't decide if that's lawyer-speak or broker-speak.
Either way it's seems like a curious comment coming from the organization that has regularly said it opposes a uniform fiduciary standard for brokers and registered investment advisors (RIAs) under the Investment Advisers Act of 1940 (the law under which RIAs currently operate). Instead the group prefers a tiered approach to disclosure and fiduciary standards. Some clients would fall under a new version of a fiduciary standard, other would not. Brokers want to be able to continue to sell, for example, incredibly complex investments, that might not be in the customers best interest, if the client wants those products.
SIMFA would also like to avoid signed statements from customers attesting to the fact that they understand the risks and potential conflicts of interest between the client and the firm. Instead, they would like to merely discuss these concerns with clients and refer them to a website for more information. They are supposed to be doing that now. How has that been working for you?
In a recent letter to the Securities and Exchange Commission (SEC), SIMFA says it supports a new fiduciary standard that is different from that spelled out in the Investment Adviser Act of 1940 because it hurt their business. In the letter SIMFA stated that they "believe that a wholesale extension to broker dealers of the general fiduciary duty implied under the Advisers Act is not in the best interest of investors and is problematic for the broker dealer business model."
It seems pretty clear that they are requesting a less stringent definition of "fiduciary standard." In other words, they support a "watered down" version of the what the "best interest of the client" really means.
As for the statement that brokers aren't seeking a "shortcut" around fiduciary responsibility. In the same letter to the SEC requests that fiduciary standards not apply to "introductory discussions regarding the relationship" between brokers and their clients.
So, if they are not required to provide the same up-front disclosure of fees, risks, and potential conflicts of interest as is currently required of investment advisors, doesn't that shorten the initial sales process? Finding a faster way to a destination (in this case a broker-client relationship) is the dictionary definition of "shortcut."
Leave it to a lawyer who works for a bunch of brokers to redefine "water down" and "shortcut," then to claim to support a standard that they want completely gutted and revamped to favor their business model at the expense of clarity, honesty, and the ultimate well being of their customers.Maybe we should forget trying to get brokers to act as fiduciaries, if it means watering down the definition. Maybe investors are better off with the status quo, where brokers can prevaricate, obfuscate, and discombobulate their clients with impunity, while RIAs continue to operate under a very strict set of rules requiring honesty, full disclosure, and responsibility to their clients. At least now, you know who is looking out for you versus looking out for themselves and their firm.