The Battle Between SIFMA And The Institute For The Fiduciary Standard Heats Up

Thursday, April 26, 2012 10:47
edit
The Battle Between SIFMA And The Institute For The Fiduciary Standard Heats Up

Tags: fiduciaries | sec | SIFMA

The battle over the appropriate application of the term “fiduciary” has intensified toward an industry organization, the Securities Industry and Financial Markets Association (SIFMA). The Institute for the Fiduciary Standard, an organization that represents investment advisors, has accused SIFMA of trying to misapply the term in an effort to water down the application to brokers.

This Website Is For Financial Professionals Only


 
Although the SEC and the Department of Labor are working intently to formulate a universal standard, the Institute says there are still multiple issues to resolve.
 
SIFMA members claim that most brokers already function as fiduciaries despite the fact that they sell products and services. The Institute states that this application of the term is in conflict with the Dodd-Frank Act which stipulates that the strength of a uniform standard must match that of Section 206 of the Investment Advisors Act of 1940. The Institute recently sent a letter to the SEC outlining its position and further criticizing SIFMA’s stance.

Comments (9)

...
brentb843
We really need to refocus the argument. SIFMA is attempting to redefine fiduciary. They and the broker-dealers do not like the current definition, so they need it changed.

Lets always keep in mind, fiduciary has long been defined and in the investment realm, since 1974 with ERISA.

brentb843 , April 27, 2012
...
lisagray
That's definitely true, Brent. It's the application of that definition that seems to be at issue. Good points--thank you for making them.
lisagray , April 27, 2012
...
brentb843
What I do not understand is why do brokers need to be fiduciaries? There is a need, especially for RIAs, to have someone to simply execute trades and custody assets.

There is a need for investors who want to do it themselves. I hear this as a justification all the time from the dually registered individuals.

Would it not be easier to make everyone who provides advice to be registered under the 1940 Act? And then have brokers just recommend suitable trades for a commission?




brentb843 , April 27, 2012
...
brentb843
Oh wait, I get it!!! (sarcasm intended)

If a broker could not provide advice and an advisor is held in a fiduciary compacity, a dually registered rep would have to somehow disclose when they are not acting in the investor's best interest.

So - essentially a dually registered rep can tell the client he is an advisor, but act as a broker. Because brokers are not required to disclose such conflicts, the investor thinks they are getting advice!

Maybe the real issue is whether an individual can be dually registered? Wear two hats with a single client lacking full disclosure?
brentb843 , April 27, 2012
...
lisagray
That would be an easy and viable solution. But margins have been getting squeezed so much at the big firms that they are clamoring for any way they can to widen them. That's why the push to offer "family office" services, which is just wrong in my view and only confuses clients more. I've been following this for the bulk of my career and have done significant work on the topic. Much more than there is room to say here.
lisagray , April 27, 2012
...
brentb843
oh Wow - just spitballing here (more sarcasm intended) do you think this is the real motivation for FINRA being an SRO over RIA firms?

That FINRA, owned by broker-dealers (ie, the S is SRO) could create regulations that would be in the best interest of their members who are losing tremendous marketshare to RIAs?

brentb843 , April 27, 2012
...
lisagray
Oh, my! Could that possibly be hitting the nail smack on the head??? (sarcasm also intended)
lisagray , April 27, 2012
...
brentb843
The thing is shame on the RIA industry for being so disjointed. Collectively no counterargument has been made, and some RIA firms naively believe custodians like TDAI, Schwab, etc will do it for them.

Skip Schweiss at TDAI is doing a great job, but at the end of the day he cannot argue for changes that would ultimately harm the parent company he works for.
brentb843 , April 27, 2012
...
lisagray
Well, it's a wonderful opportunity to raise the quality of service industry-wide. I hope it will not be allowed to pass by unexploited. I've enjoyed this conversation with you, Brent.
lisagray , April 28, 2012

Write comment

You must be logged in to post a comment. Please register if you do not have an account yet.

busy