Other Voices

Why all investment advisers should join forces to promote the profession

Many investors don't understand the core characteristics of an investment adviser

Mar 1, 2015 @ 12:01 am

By David Tittsworth

Having walked out the door of the Investment Adviser Association last month, I have two parting words for all investment advisory professionals: Get involved!

If I have learned one thing during the past 18 years working at IAA, it's that the investment advisory profession can and should do a better job of educating public officials — as well as investors, the media and the public — about who we are and what we do. Compared with the banking, insurance and brokerage industries, investment advisory has taken only baby steps to do what needs to be done to be a player in important policy debates taking place in Washington and around the world.

Why does our profession need to unite?

Few investors understand the core characteristics of an investment adviser or appreciate the key differences between investment advisers and other financial services providers. Many policymakers, including members of Congress, understand little about the basics of the profession.

Laws and regulations governing the activities of investment advisory firms have significant consequences, and the number and complexity of regulations have increased dramatically.

When I was hired in 1996, investment advisory firms were required only to have a written insider-trading policy. Today, investment advisers must comply with numerous rules, from codes of ethics, privacy, registration, disclosure and best execution requirements to custody, pay to play, proxy voting and compliance policies and procedures. Firms that have been around for the past 18 years know their legal, regulatory and compliance burdens have grown exponentially.

Some of the most important policy debates are yet to be resolved.

For example, the jury is still out on whether and how the Securities and Exchange Commission will extend or revise the Investment Advisers Act fiduciary obligations. In the meantime, the brokerage and insurance industries have caused confusion as they campaign aggressively on Capitol Hill against the Department of Labor's fiduciary proposal, which President Obama came out in favor of last week.

All investment advisory firms have a compelling interest to ensure that the highest legal standard — placing client interests ahead of their own — should not be watered down.


On another front, both Congress and the SEC continue to debate how to enhance the oversight of investment advisers. While denying it, the Financial Industry Regulatory Authority Inc. is itching to expand its jurisdiction to some or all investment advisory firms.

In my 2012 testimony before the House Financial Services Committee, I detailed the consequences of ceding oversight to a quasi-governmental entity that lacks transparency and accountability, and has demonstrated a poor track record. It will result in greater costs to the advisory profession.

Many other important issues need to be addressed, including whether asset management firms will be designated as systemically important financial institutions (and regulated like banks); the interplay between U.S. and international laws and regulations; and whether Investment Advisers Act rules will be “harmonized” with command-and-control regulations governing the brokerage industry.

There are many reasons the investment advisory profession has not done a better job of representing itself. They include the enormous diversity among firms; the tendency of advisers to be fiercely independent thinkers, as well as their disdain for the “nonlinear” ways of Washington; and the fact that laws and regulations are not particularly sexy.

But all investment advisory firms share core characteristics, goals and objectives, and should understand the compelling need to act collectively for the good of the profession.


Despite the differences, all are “investment advisers” within the meaning of the Investment Advisers Act and subject to the act's well-established fiduciary duty rule. All face potentially negative consequences if laws and regulations become overly burdensome or are not appropriate to the field. All can benefit from positive perceptions of the profession and from encouraging high ethical standards. And all will gain from organized, collaborative efforts to foster a better understanding of the investment adviser profession.

I understand that dealing with politicians in Washington can be difficult. I understand that submitting comments to the SEC and other regulators is not particularly scintillating. But for many years, I have seen that collective, concerted and sustained advocacy efforts are necessary to have any shot at influencing the outcome of policy debates.

I'm grateful for the opportunity I've had to represent the interests of SEC-registered investment advisory firms. And I look forward to seeing the profession make greater progress as investment advisers make the time and effort to get involved.

David Tittsworth is the former president and chief executive of the Investment Adviser Association.


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