Forget the F-word — RIAs play down fiduciary standard online

Many registered investment advisory firms are not touting the fiduciary standard they must meet when providing investment advice, a fiduciary advocate has found.

A review of 45 fee-only RIAs by the Institute for the Fiduciary Standard shows 14 of them mention the term “fiduciary” on their website homepages, while 11 of them don’t cite the term anywhere on their websites. The survey found 33 mention fiduciary on internal web pages.

Smaller firms tend to hold out as fiduciaries more than larger firms, according to the survey. Two of the 10 largest firms with assets under management between $10 billion and $20 billion, and eight of 15 of the smaller firms with $350 million AUM or less, mention fiduciary on their homepages.

In addition, 12 of the firms describe themselves as “fee-only” on their homepages and 31 do so on interior pages. The research used information from an InvestmentNews database to select firms for the review, which did not include interviews with firm officials.

In a webinar on Tuesday, the institute also formally bestowed its Frankel Fiduciary Prize on Ron Rhoades, associate professor of finance and director of the personal financial planning program at Western Kentucky University.

The low-profile for the fiduciary standard reflects RIA firms’ reaction to recent investment-advice regulation, said Knut Rostad, president of the Institute for the Fiduciary Standard.

Rostad asserts the Securities and Exchange Commission’s Regulation Best Interest, the new broker advice standard, has blurred the line between brokers and investment advisers, who continue to be governed by the fiduciary standard.

Rostad and other fiduciary advocates argue the fiduciary standard is stronger than Reg BI in curbing conflicts of interest. SEC Chairman Jay Clayton maintains Reg BI raises the broker standard from previous suitability and is a significant advance in investor protection.   

"Where this comes into play is the degree to which the SEC has succeeded in convincing investors that there’s not a dime’s worth of difference between brokers and advisers,” Rostad said.

The fact that firms don’t highlight “fiduciary” prominently on their websites “tells us something, I think, about how the market is reacting to perhaps what we’ve seen in regulation in terms of trying to erase the significance of fiduciary.”

Still, Rostad said fiduciary advice is growing in popularity in the marketplace.

“Fiduciary and or fee-only branding is winning with smaller advisers,” Rostad wrote in an email. “With other advisers not highlighting on their home page, it is a combination of complacency and misunderstanding what the SEC has done brought on by ‘too good’ business times.”

FIDUCIARY FOR ALL

The influence of the financial and insurance industries reached their zenith in the promulgation of Reg BI, Rhoades said during the institute’s webinar. In many comment letters and papers, he has promoted a uniform fiduciary standard for advice.

“A bona fide fiduciary standard of conduct is tough to adhere to in financial services,” he said. “We need to design regulatory structures that better fit the fiduciary standard, rather than seek to adapt the fiduciary standard to fit current conflict-ridden business structures. I have a vision of a future where all financial and investment advisers are fiduciaries, trusted by the public, and where the demand for financial advice soars, as trust in financial advisors grows.”

The Frankel Prize is named after Tamar Frankel, professor of law emerita at Boston University, and recognizes outstanding fiduciary advocacy.

“His work reaches across the spectrum as a teacher, practitioner, and public advocate,” Deborah A. DeMott, a professor of law at Duke University and chair of the Frankel Prize committee, said of Rhoades in a statement. “Through his extensively developed commentary, he’s been a trusted and knowledgeable resource, placing him in a class of one as a scholar/commentator.”