Sounding Off: Fidelity's Attack on Fiduciary Standard 'Unsupported, Ill-Conceived'

On Wednesday, Ronald O'Hanley, Fidelity's president of asset management and corporate services urged congressional action to stave off what he described as "a looming retirement crisis," appealing to lawmakers to pressure the Department of Labor to avoid an expansive redefinition of fiduciary responsibilities for advisors.

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Comments (6)
Amen. Anyone calling themselves an "advisor" should be required to accept fiduciary status, just as anyone calling themselves a finacial planner should have a CFP, ChFC or similar widely-respected certification. Actually, it seems to me that accepting fiduciary status should be a requirement for anyone providing financial/investment advice to the public, regardless of their job description.
While the product purveyors are trying to protect their distribution channels, we as a profession have to decide if we're truly fidciary advisors or simply part of the distribution chain.
Posted by Jim L | Friday, April 12 2013 at 12:05PM ET
The US brokerage interest's push back on fiduciary standing for brokers is self-defeating and sadly translates into its loosing its global market leadership role in financial services. Today other parts of the world are subscribing the traditional understanding of fiduciary duty. In the US individual investors are not afforded equal consumer protection under the law as institutions and trusts long established in commerce based on 800 years of common law.

In other parts of the world we are seeing the adoption of XBRL facilitating the free flow of data which is crippled here by brokerage interests. Unless a recommendation can be made in the context of all a client's holdings, it is not possible for the broker to know whether their recommendation increase return or reduced risk on the client portfolio or whether it enhanced tax efficiency, liquidity, cost structure, etc. of all the client holdings as a whole. Does Mr. O'Hanley have the consumer's best interest in mind? Is Mr. O'Hanley part of the problem or part of the solution? What is Mr. O'Henley's thoughts on the professional standing of a broker?

Does transparency in cost and results in the consumer's best interest influence his opinion. In the consumer's mind there is nothing to fear in transparency unless there is something to hide. And there is plenty which has been hidden which cause consumers and advisors alike to question the industry's ability to act in the consumer's best interest. There seems to be no understanding of the importance of restoring the trust and confidence of the investing public in our financial institutions based on objective, non-negotiable fiduciary criteria of statute, case law and regulatory opinion letters.

What should consumers and advisors think?

Posted by Stephen W | Friday, April 12 2013 at 12:32PM ET
I would argue that the fiduciary standard lies not in the certifications an advisor holds, nor in the company for which an advisor works. In my opinion, the true test of the fiduciary standard in a client relationship lies in the processes the advisor uses to deliver advice. ( For this argument lets assume that anyone delivering fiduciary services must have some minimal educational background and that we all agree on that. ) Would anyone suggest that an advisor should have to provide a fee-based plan to each 401(k) plan participant before they were eligible for the plan? Does everyone really need a comprehensive financial plan before buying any financial product? Until there is agreement in our industry as to the framework of those processes and the standards to be met in those processes, there can be no public confidence that they are receiving a fiduciary level of service. Should there be a universally applicable fiduciary standard accross the entire financial services industry? Are we only talking investment products here, or should be include insurances and bank products? I ask myself, where would the public accounting profession in the U.S. be without GAAP? While I think that the American College has done a great job of marketing the CFP and ChFC brands, in their current form these designations really don't guarantee the public that they will be receiving anything other than an advisor that passed some classes and took an exam. I think a standard and certification such as the ISO 9000 quality management system designations are a good model to consider in this debate. I would advocate that the focus be on defining several key issues: what the processes are that ensure a fiduciary standard in our industry; what tools can/should be used to meet those standards; and what information must be included in reports to clients to meet that standard. Once we have a definition specific to our industry we should have better agreement on where and when that standard needs to be applied, and how to designate individuals who adhere to those processes.
Posted by Eric B | Friday, April 12 2013 at 1:34PM ET
Ronald O'Hanley is doing what any executive in his place should do, minimize the business risk to Fidelity.
That is where his loyalty should and does lie.
Who on Wall Street would not admire someone who can make a fortune with minimal risk or responsibility?
Posted by ed s | Friday, April 12 2013 at 4:20PM ET
I have no problem with fiduciary responsibility. However:

Seeking the best interest of my client I can not recommend an asset management fee as an RIA which unless there is active trading, over the long-term is far more expensive than breakpoints on commission based mutual funds.

"Fee only" is often very expensive vs one-time A share using breakpoints.

David Pittelli, then President of the Mutual Fund Investors Assn, said in editor comments about a magazine article saying that a 1% "fee" is mathematically equivalent to a 8.9% front end load, corrected the math and showed it was equivalent to a 9.516% front-end load over ten years if applied annually, or 9.56% if applied daily . This would be in violation of FINRA regulations to charge for a mutual fund front end load, yet most fee only planners or brokers charge not 1% but often 1.5-2% depending on the size of the account.

If the investment goes up (like we hope) the effect would be greater since the annual fee applies to larger values (hopefully in most years).

The issue is similar to B shares which I have often called the "killer B's" that long-term are more expensive than A shares. The better the return the higher the cost for B shares vs A - especially with breakpoints.

Currently the conflict of interest is solved by disclosure as it should be. But trying to force customers into a more expensive fee only arrangement instead of cheaper commission based violates in my view my fiduciary responsibility (am dually registered as both IRA and registered rep and registered principal OSJ etc)
Posted by Dave H | Friday, April 12 2013 at 9:51PM ET
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