The Committee For The Fiduciary Standard was formed in June 2009 by a group of investment professionals and fiduciary experts, just as policymakers and industry leaders were reviewing the repercussions of the financial crisis, to advocate that all investment and financial advice be rendered as fiduciary advice and meet the requirements of the five core fiduciary principles.
Five Core Principals
- Put the client’s best interests 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
- Fully disclose and fairly manage, in the client’s favor, unavoidable conflicts
Most recently, The Committee wrote to urge the SEC to consider the issue of misleading titles and advertising, as a part of its deliberations regarding when and where fiduciary duty should apply. Here is a portion of their statement:
It is no secret that, over the years, the brokerage industry has morphed away from the use of the traditional “stockbroker” or “registered representative” titles and toward those titles that emphasize that an advisory relationship exists, such as “financial advisor” or “wealth manager.” Hence, it is not surprising that investors are confused about the nature of the services offered by their financial professionals. In survey after survey, consumers have indicated that they do not understand the key distinctions between the duties, services, and compensation models of investment advisers and broker-dealers. Consumers attribute their confusion in large part to the brokers’ use of titles such as “financial advisor” and “financial consultant.”
The Committee goes on to say that:
The authentic fiduciary standard legally requires an investment adviser to act, under the Investment Adviser Act of 1940, as a medical doctor would, completely in their clients’ best interest.
The “arms-length” suitability standard allows a broker or advisor to recommend clients products that are in the best interest of their firm.
The difference, they say, is stark:
If an investor is wronged by a broker, the burden is on the investor to prove the broker’s wrongdoing.
If the investor is wronged by a fiduciary advisor, the burden is on the advisor to prove they acted in the client’s best interest.
The Committee believes that investors have a right to know whether or not their advisor is acting in their best interests. For those investors and firms that believe the same, the Committee has drafted a straight-forward oath declaring an advisor’s commitment to adhere to a fiduciary ethic and, in so doing, be accountable for the advice to their clients. They recommend that investors insist the oath be signed by their advisors before entering into a relationship.