As the federal government prepares to issue new rules regarding investment advice, industry professionals and scholars have launched a nonprofit organization to promote the fiduciary standard.
The Institute for the Fiduciary Standard will advocate the broad adoption of regulations requiring that investment guidance be based on the best interests of clients and that advisers disclose all material conflicts of interest.
Investment advisers currently have to meet that bar, while broker-dealers adhere to a less stringent suitability standard that requires them to recommend financial products that satisfy a clients investment needs.
Under authority from the Dodd-Frank financial reform law, the Securities and Exchange Commission said that it intends to propose a rule this fall that would impose a universal fiduciary duty on anyone providing retail investment advice.
The Labor Department has proposed a rule that would significantly expand the number of advisers who are fiduciaries to retirement savings plans. The agency said that it is still on track to issue a final regulation by the end of the year.
“These next four to eight months are absolutely critical,” said Knut Rostad, president and a founding member of the Institute for the Fiduciary Standard.
The group will meet with SEC and Labor Department officials, as well as members of Congress and their staffs, over the next several weeks. It has scheduled a Capitol Hill panel discussion Sept. 9 focusing on disclosure rules.
In addition to Mr. Rostad, compliance and regulatory officer at Rembert Pendleton Jackson, the organization's founders are Marion Asnes and James Patrick of Envestnet Inc.; Philip Chao of Chao & Co.; Maria Elena Lagomasino, chief executive of GenSpring Family Offices LLC; Michael Zeuner, also of GenSpring Family Offices; and Kathleen McBride of the Institute for Private Investors.
The group has broken away from the Committee for the Fiduciary Standard, which will now be headed by Harold Evensky, president of Evensky & Katz LLC.
Mr. Rostad said that he and the other founders of the Institute for the Fiduciary Standard felt the need to establish a permanent organization that would go beyond advocating for fiduciary principles within the context of Dodd-Frank and Labor-Department rule making.
“Misunderstandings abound about what fiduciary means,” Mr. Rostad said in a statement. “The Institute provides a permanent platform to build a full program of advocacy and education on this important public issue.”
Earlier this summer, the Securities Industry and Financial Markets Association sent a letter to the SEC urging the agency to develop a new fiduciary standard that would be applied on an “account-by-account basis” and be spelled out in an agreement at the start of an adviser-customer relationship.
“The framework is a mixed bag,” Mr. Rostad said. “There are some encouraging parts and other parts that raise serious questions.”
Fiduciary skeptics, such as the National Association for Insurance and Financial Advisors, warn that imposing a universal standard would undermine the broker-dealer business model and increase regulatory and compliance costs that could price middle-income investors out of the advice market.
But the institute will argue this fall that fiduciary protection is required to restore
trust to the advice business.
“There is a tremendous need to help investors understand the sharp differences between fiduciary advisors and sales professionals, who may sound alike — but then often act very, very differently,” Ms. Lagomasino said in a statement.
