Institute for the Fiduciary Standard launches best practices effort, eyes new certificate

Led by Vanguard founder John “Jack” Bogle and Boston University professor Tamar Frankel, new board will introduce guidelines by year end

May 13, 2014 @ 12:59 pm

By Mark Schoeff Jr.

While federal regulators debate rules that would raise investment-advice standards, one organization dedicated to promoting a fiduciary standard is taking matters into its own hands.

The Institute for the Fiduciary Standard, a think tank whose purpose is to promote a fiduciary standard in the advice industry, announced Tuesday that it is establishing a board of advisers to outline best fiduciary practices for advisers. Led by Vanguard founder John “Jack” Bogle and Boston University professor Tamar Frankel, the board will introduce the guidelines by the end of the year and put them out for public comment.

After the best practices are finalized, the organization plans to accredit advisers who follow them.

The effort has been spurred in part by the continuing delays by the Securities and Exchange Commission and the Labor Department, as each agency considers proposing fiduciary-duty rules, according to Knut Rostad, president of the institute.

The other motivation is the fact that investors are confused by investment-advice standards and have grown to distrust the financial markets, he said.

“There is evidence that investors don't believe fiduciary advisers exist at all,” said Mr. Rostad, the regulatory and compliance officer at Rembert Pendleton Jackson. “That should be worrisome to fiduciary advisers.”

The best practices likely will resemble the six fiduciary duties that are currently outlined on the organization's website. They include acting in the client's best interests with good faith and prudence while avoiding conflicts of interest, disclosing “all material facts” and controlling investment expenses.

Under current rules, investment advisers must act in the best interests of their clients. Brokers are held to a suitability standard when they sell investment products, which allows them put their clients in higher-priced products as long as they meet their investment needs.

The Dodd-Frank law gave the SEC the authority to promulgate a regulation that would impose a uniform fiduciary standard for retail investment advice. The agency is considering whether to propose such a rule. Meanwhile, the DOL is poised to re-propose a rule later this year that would expand the definition of “fiduciary” under federal retirement law.

The efforts of both agencies to come up with acceptable fiduciary guidelines are controversial and have supporters and detractors within the financial advice industry.

As a result, the advice sector should not rely on the regulators, said Mr. Rostad, who is concerned that a SEC rule may water down the fiduciary standard currently applied to investment advisers.

“The profession itself needs to take a strong stance,” he said. “Fiduciaries have to act. They have to clearly establish how they are different from other investment professionals and what it is that makes them preferable to other investment professionals.”

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

What investment tools should you add in 2018?

As you look ahead to 2018, what types of financial products would you like to add to your quiver? Financial advisers at the MarketCounsel Summit offered their perspective, but one thing is clear "choice is power."

Video Spotlight

Help Clients Be Prepared, Not Surprised

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

RIAs struggle to keep clients grounded amid stock market euphoria

With equities at record levels, financial advisers are confronted with realities of greed and fear.

Regulators showing renewed interest in cracking down on investment fees

SEC, Finra targeting high-fee share classes, 12b-1 fees and failure to give sales load discounts and waivers to investors.

Tax update: Brady says sales tax deduction in final bill

Taxpayers will be able to deduct state income taxes or state sales taxes in addition to property levies — up to a $10,000 cap.

Complexity of new indexed annuities causing concern

Insurers are using 'hybrid' indices as a way to differentiate themselves, but critics contend the products are less transparent, more confusing and don't add financial benefit.

Critics say regulation hasn't curbed overly rosy projections for indexed universal life insurance

They say rule didn't go far enough and more stringent measures may be necessary.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print