Insurers out to kill fiduciary standard, planners say

A petition signed by about 5,200 financial planners was delivered to the Securities and Exchange Commission, urging the commission to impose a universal fiduciary duty on anyone providing retail investment advice.

The Financial Planning Coalition sent the petition and a related letter to the SEC and 16 members of Congress in an effort to prod the SEC into exercising the authority granted by the Dodd-Frank Act to promulgate a fiduciary duty regulation.

The FPC, which is comprised of the Financial Planning Association, the Certified Financial Planner Board of Standards Inc. and the National Association of Personal Financial Advisors, says it is using the letter to amplify the voices backing a universal fiduciary duty to make them as strong as those trying to derail the proposed rule.

Specifically, the coalition insists that the insurance industry wants to torpedo a single standard of care. “There is a small and isolated pocket of opposition from the insurance lobby, particularly NAIFA,” Marilyn Mohrman-Gillis, CFP Board managing director of public policy and communications, said in a conference call with reporters. She was referring to the National Association of Insurance and Financial Advisors.

“Sometimes, there’s a silent majority, and you don’t want that to get lost,” Ms. Mohrman-Gillis said. “There are thousands of people willing to sign a petition and say, ‘Move forward.’”

But NAIFA denies that it is attempting to kill a single fiduciary duty. “We’re not trying to scuttle anything,” said Gary Sanders, the organization’s vice president for securities and state government relations. “We have raised concerns, and they have not been adequately addressed. A universal fiduciary duty, as they’ve been describing it, could affect the ability of midmarket consumers not only to afford financial services but also to receive financial advice.”

Indeed, the insurance industry group says it wants to make sure that imposing a universal standard is supported by a study the SEC is currently conducting. The association also wants to ensure that a new standard provides greater consumer protection but does not price middle-income investors out of the market.

The FPC, however, argues that a universal fiduciary duty will better protect investors, who do not understand that investment advisers and broker-dealers adhere to different standards of care. Clients, the group says, assume that all financial professionals must act in their best interest. In reality, investment advisers adhere to that requirement, while broker-dealers meet a less stringent suitability rule for the products they sell.

“As a financial service provider, I can choose to operate under different regulatory structures, each with different standards and requirements for how I treat my clients,” the FPC petition states. “Some require me to put my clients’ financial interests ahead of my own, some do not. But there is no easy way for consumers to distinguish.”

Mr. Sanders said that NAIFA advisers follow a fiduciary duty, in effect, because their businesses depend on establishing trust with clients. “The only way you have a long-term relationship is if you’re looking out for the best interests of your clients,” he said.

Of the organization’s 50,000 members, about two-thirds have securities licenses and all have insurance licenses. Some are investment advisers. A fiduciary duty would directly affect the sale of variable annuity products.

The battle between NAIFA and the FPC is likely to become fiercer as the SEC moves closer to promulgating a fiduciary rule later this summer or in the fall.

“They’ve signaled that’s their timetable,” said Dan Barry, the FPA’s managing director for public policy and government relations. “Hopefully, they’ll quickly turn to this.”