An interesting article came out yesterday that made the case that the fiduciary debate was basically meaningless because brokers can already be held to fiduciary standards through ERISA and various state laws. The author is of course correct as it applies to the cases and laws he cites. However, the article omits the gap around which the entire debate is centered. As Kristina explained to RegisteredRep yesterday, the big controversy and the target of the current reform efforts is about federal securities laws and the confusion among retail investors as to what standard of care they are receiving.
As the RAND Report on Investor and Industry Perspectives on Investment Advisers and Broker-Dealers illustrated, the services offered by brokers have come more and more to resemble those traditionally provided by investment advisers while both sets of professionals have continued to be regulated based on traditional definitions of their roles. More importantly, investors often can't tell the difference between the two. Brokers will often refer to themselves as "financial advisors" and investors typically assume a relationship of trust with investment professionals. Yet, the report reflects investors' doubt or surprise that a fiduciary standard doesn't necessarily apply. In addition, investment advisers and brokers themselves don't always know where the dividing line is between the recommendations and "incidental" advice that falls under the fair dealing (suitability) standard and individualized advice that falls under the fiduciary standard.
It's not hard to see why some would oppose a fiduciary standard to protect their interests or to find fault with the legislative and regulatory process. But it is much more difficult to believe that the pursuit of closing gaps and providing clarity and consistency in the interest of investor protection isn't a cause worth pursuing.
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