Fiduciary Standard

Committee for The Fudiciary Standard petition

Wednesday, August 12, 2009

This is not, and never will be, a political action blog, but politics and regulation play a significant role in the ability of consumers to safely look after their financial interests. With that in mind, I’m posting a statement from the recently formed Committee for the Fiduciary Standard, which has assembled to educate regulators about the importance of establishing a standard that requires all financial professionals who provide advice to act in the best interest of their clients. I’ve posted in the past about the fact that the majority of advisors today are not required to act in their clients’ best interests.

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Industry Leaders Urge Citizens to Sign Petition:

Call on Congress to Reform Wall Street;

Make the Authentic Fiduciary Standard

Central in any new Laws

The Committee for the Fiduciary Standard calls on Congress to make sure the authentic fiduciary standard principles are in any new laws that extend fiduciary duties to more advisors or brokers. The five core principles of the authentic fiduciary standard say it well. They are:

Put the client’s best interest first;
Act with prudence; that is, with the skill, care, diligence and good judgment of a professional;
Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts;
Avoid conflicts of interest; and
Fully disclose and fairly manage, in the client’s favor, unavoidable conflicts.

Act Today. Register your support for the authentic fiduciary standard at the web site, www.thepetitionsite.com. On the site, where you “search petitions”, put in “investors best interest first”, to find our petition.

Background. For too long investors have been in a financial jungle trying to sort out the financial salesmen from the fiduciary advisors. Many sound alike. But, the legal differences between the brokers’ suitability standard and the investment advisers’ fiduciary standard are stark. The authentic fiduciary standard requires advisers to adhere to five core principles; the suitability standard does not.

Why do citizens need to sign a petition for the authentic fiduciary standard?

It is simple. Knowing the facts - they accept nothing less. Opponents will try to defeat this legislation. Congress may try to weaken the fiduciary standard.

Further Information. For further information, contact Sheryl Garrett at Sheryl@GarrettPlanning.com or Knut A. Rostad, The Committee for the Fiduciary Standard, (703-821-6616 x 429, KAR@rpjadvisors.com).

Tags: fiduciary standard, fiduciary duty

Can you trust your financial advisor?

Thursday, July 16, 2009

When the Ponzi scheme perpetrated by Bernard Madoff came to light late last year, it was perhaps the most grandiose in a long line of incidences of a financial advisor abusing the trust of his or her clients. Coupled with the 2008 performance of most investment accounts, many customers and potential customers of financial advice are wondering who they can trust.

One of the challenges inherent in the advisory business is that most registered “advisors” are not required to act in their clients’ best interest. Surprised? You’re not alone. A TD AMERITRADE study on investor perception conducted in 2006 demonstrated that only 26% of investors understood that only investment advisors have a fiduciary responsibility to act in the investor’s best interest in all aspects of the financial relationship. In short, brokers do not bear this responsibility. Furthermore, the percentage of all advisors that worked solely under the Registered Investment Advisor (RIA) model 18 months ago was only 5.5%. An additional 3.9% were dually registered, which means that they are licensed to sell products under which they are not required to act in investors’ best interest, as well as provide advice under the RIA model, where they are so required. Bottom line: fewer than 10% of all advisors were required to act as fiduciaries in any capacity.

Copyright 2009 Crain Communications Inc.

Of course, there is now a requirement for brokers to disclose this fact in the fine print of their materials. Clearly, though, the message isn’t resonating. The TDAmeritrade study indicated that “…if investors knew that stockbrokers were not required to act in their best interest in all areas of the financial relationship, 70% would not use them”!

Similarly,

“If investors knew that stockbrokers provided fewer investor protections than investment advisors, 63% would not seek financial advice from them.”

“If investors knew that stockbrokers were not required to disclose all conflicts of interest, 70% would not seek advice from them.”

For various reasons, financial literacy is an ongoing issue in our country, and the consequences are serious. Many blame our current macroeconomic issues on the lack of basic financial understanding on the part of the average citizen. I think there is a lot more to it than that, but I do believe enhanced financial literacy will lead to reduced pain for hardworking Americans.

Tags: fiduciary duty, investor perception, ria

Fiduciary Standard

Jon Stewart as Fiduciary?

Thursday, March 26, 2009

Bob Veres - who is a titan in the financial planning world - was recently interviewed on MorningstarAdvisor.com (subscription required). Much to my surprise, he was asked about the recent exchange between Jon Stewart and Jim Cramer. It surprised me to see pop culture enter this realm, but that particular episode of The Daily Show has obviously transcended the mainstream.

First let me say that I respect the fact that Jim Cramer showed up for the show. He didn’t have to, and the original shot that Stewart took was not even aimed at Cramer. Furthermore, as Stewart freely admitted, his show takes its shots and makes light of things in a way that may or may not be accurate or truthful. The point is to be funny, not to deliver news in any kind of balanced manner. All of that aside, it was clear in the unedited version of this that Cramer bowed to Stewart on just about every point. Why? I don’t know, but I do think that the main thrust of Jon Stewart’s “attack” was right on the money: this is not a game for most Americans. As Bob Veres replied in the Morningstar Advisor interview, “Stewart is speaking the language of the fiduciary financial planner. He is pointing out to the media that this is not entertainment, its people’s lives. What Jon Stewart is getting at, and what planners get at instinctively is that money runs much deeper than the numbers, the entertainment value and the news. It is tied up with our psychology, ambitions, and goals–everything that we are as people. Treating it as anything less is trivializing it in a very dangerous way. The market does what it does and the financial media has just become an echo chamber.”

Well said.

Tags: jon stewart, fiduciary

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