A fiduciary standard for the planning industry remains, for now, a mirage: The U.S. Department of Labor said recently that an expected summertime announcement would be deferred until next year. The SEC doesn’t seem to have established a timetable.

Yet thousands of advisors have moved to declare their own fiduciary standard. They are holders of the Accredited Investment Fiduciary certification, administered by fi360, a fiduciary training company. AIF training teaches what fiduciary obligations are and how to ensure they are followed. The AIF is a prerequisite for those who want to get an Accredited Investment Fiduciary Analyst certification, which teaches how to do a fiduciary assessment.

The ranks of AIFs now total about 6,500, including prominent planners like Sheryl Garrett, Harold Evensky and Glenn Kautt. Of those, about 75% are RIAs, but fi360 CEO Blaine Aikin says that “by far our most rapid growth is now in the independent broker-dealer and wirehouse arena.” Aikin has broad experience in planning: he’s a director of the CFP Board, worked at Prudential Bache Securities and PNC, and holds a CFP, CFA and AIF.

At fi360’s recent annual conference in Nashville, Tenn., Financial Planning spoke with Aikin about the growth strategy for 15-year-old fi360, as well as the changing demographic of advisors seeking an AIF. Below are edited excerpts.

How do you define fiduciary?

The core fiduciary principles are the obligations of loyalty and care — to put your clients’ best interests first and then provide a level of due diligence, of prudence, good judgment.
In a situation where you’re not subject to a fiduciary standard, if you are subject to the fair-dealing standard, you have divided loyalties. You have an obligation to your employer and to your client. In a case of divided loyalties, you need to ask, 'Where’s the dividing line? How do I balance those interests?’ It is evolutionary. Your obligation is not to adhere to a rule that was established in 1940. Your obligation is to apply practices as they exist today.

Why aren’t there 50,000 to 100,000 AIF advisors?

It always takes time to reach the marketplace and there is an acceleration of growth that happens. Back in time, we had no marketing or sales effort; it was really a matter of 'if you build it, they will come,’ and, fortunately, a number did.

How do your years at Pru inform your thinking about being an AIF? Do you think your earlier work met a fiduciary standard?

Candidly, I don’t. This was at a time when it was a very active brokerage market and certainly those who entered the class with me at Pru Bache were much more selected for their sales capabilities than for their expertise with investments. You gain certain expertise through the training programs, but certainly the incentive structures promoted sales as the primary objective and that’s the way the reward system was based. Having earned the CFP designation prior to the time I joined, I had a different approach to the way I conducted my business than my typical colleagues. Whenever I work with fiduciary and nonfiduciary distribution forces, there’s a dramatic difference — cultural as well as an orientation difference.

Isn’t it a conflict for wirehouse advisors to pursue an AIF given the nature of their work?

It’s not just a question of the right thing to do and what the regulation requires you to do. We think it makes very sound business sense for anyone who’s providing professional advice or taking control of client assets. If you truly are providing personalized advice or you’re taking discretion, for example, you are functionally a fiduciary and need to behave in that manner. Additionally, if you stop and think about the interest of the end investor, it’s to gather, grow and protect assets. Likewise, for an advisor who is a professional intending to stay in the business, the path to sustainable business success is to gather, grow and protect client assets. We would argue that you’re wise to follow a fiduciary ethic even if you’re not technically held to regulatory fiduciary obligation. It makes good business sense.

How is the fi360 Investment Policy Statement Generator a key part of your business model?

The preparation and management of a sound investment policy statement is perhaps one of the most important functions a fiduciary performs because it’s basically the business plan for a portfolio. What we have available through the IPS AdvisorPro tool is the ability to address virtually any type of portfolio and have a template base that allows you to take in the basic information about the client and prepare an investment policy statement that can then be further massaged and customized. It brings compliance capabilities, as well.

Is fi360 more an accreditation company or a technology company?

We firmly believe the fiduciary approach represents a good business strategy in addition to the appropriate professional code of conduct you should adhere to. It takes knowledge and it takes tools, so I wouldn’t distinguish ourselves as being one versus another, but you’re going to see more technological enhancements both in the tools themselves as well as the learning development.

You have a clear stake in a regulated fiduciary standard. What is your outlook on the very extended process?

I think frankly the situation is such at the SEC that I don’t expect to see action there in terms of extending the fiduciary standard. If we do, I don’t think it will be easy or even sustained in the short term because there would likely be a challenge to it. The Labor Department is determined to go forward with something and I believe they will.

I will add that I find what FINRA’s doing fascinating because I think they are pushing up the obligations of the broker-dealer community, and I give them credit for that. They’re not using the word fiduciary in terms of the changes they’re making to the suitability standard, nor do they use the word in the report on conflicts they issued. Nevertheless, they are clearly looking at raising the bar in a very fiduciarylike manner. The ability to identify inappropriate conduct goes up dramatically. You will see true benefits to the investing public.

If you elevate enough from the FINRA side, then increasingly those in the broker-dealer community who are trying to stave off the fiduciary responsibility have to start questioning why. Why not embrace it? It’s clearly what clients want if they understand it and clearly can be a successful business model.

The most helpful thing of all is the competitive marketplace, which is changing dramatically. There is a real advantage to be able to say, 'I’m willing to adhere to a standard that puts my clients’ best interests first.’ That’s tough to beat in a competitive marketplace. 

Scott Wenger is group editorial director of Financial Planning, On Wall Street, Bank Investment Consultant and Money Management Executive. Follow him on Twitter at @ScottWengerFP.

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