A new fiduciary registry aims to counteract perceived shortcomings in the SEC and the CFP Board’s fiduciary requirements by identifying the strictest fiduciary advisers nationwide.

Run by the Institute for Fiduciary Standard, and publically supported by TD Ameritrade Institutional and Pershing Advisor Solutions, the registry will promote advisers who observe its 12 best practices.

The SEC and the CFP Board’s standards "are incomplete," said Knut Rostad, president of the Institute for Fiduciary Standard, at a press conference introducing the list which will publish the names of firms and advisers who publicly commit to the practices. In short, they do not spell out in plain-enough language what fiduciary care constitutes.

(Bloomberg News)
The SEC’s fiduciary standards "are incomplete," said Knut Rostad, president of the Institute for Fiduciary Standards. (Image: Bloomberg News)

The SEC declined to comment on the institute's new registry. The CFP Board's spokesman Dan Drummond says the board is "evaluating" the list.

Many advisers and firms don't really understand what fiduciary client care is and many clients don't either, Rostad said during the announcement at New York’s Chrysler Building in Manhattan on Monday.

HOW TO TAKE PART
To take part in the registry, called the Fiduciary Advisor Affirmation Program, advisers and firms must include the institute’s best practices professional code of conduct on their website and in their Form ADV filing with the SEC.

By prompting firms and advisers to publicly state and legally disclose these practices, the institute is "cleverly" placing the onus for compliance on firms and advisers, who could face regulatory discipline if it’s found they were not fulfilling all the obligations of the best practices, says Brian Hamburger, general counsel of the institute's Best Practices Board, which has worked on developing the program over the last two years. Hamburger is also co-founder of compliance consulting firm MarketCounsel and runs the Hamburger Law Firm.

Many advisers and firms don't really understand what fiduciary client care is and many clients don't either, says Knut Rostad, president of the Institute for the Fiduciary Standard.
Many advisers and firms don't really understand what fiduciary client care is and many clients don't either, says Knut Rostad, president of the Institute for the Fiduciary Standard.

The 12 practices include the following:

  • Provide a written statement of total fees and underlying investment expenses paid by the client. Include any payments to the adviser or the firm or related parties from any third party resulting from the adviser’s recommendations.
  • Communicate clearly and truthfully, both orally and in writing. Do not mislead. Make all disclosures and important agreements in writing.
  • Avoid conflicts and potential conflicts. Disclose all unavoidable potential and actual conflicts. Manage or mitigate material conflicts.
  • Acknowledge that material conflicts of interest are incompatible with objective advice.
  • Avoid gifts or entertainment that are not minimal and not occasional. Avoid third party payments, “benefits” and indirect payments that do not generally benefit the firm’s clients and may reasonably be perceived to impair objectivity.
  • Avoid compensation in association with client transactions. If such compensation is unavoidable, demonstrate how the conflict is managed and overcome and the product recommendation and compensation serves the client’s best interest.

DESIRE TO BE INCLUDED
Chris Cannon, a principal at the RIA First Trust Private Wealth Management Group in Atlanta, says his firm plans to be included on the list.

"The practices are a way of demonstrating what we are already doing" to the public and to clients, says Cannon, who has served on the institute's Best Practices board. "I believe that the mere presence of material conflicts is ultimately corrosive like salt water."

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At the press conference, personal finance columnist Jane Bryant Quinn said she looks forward to referring readers of her column to the registry.

Quinn said she has devoted her career to trying to protect investors against the industry's conflicted policies — often to no avail.

"Sometimes I think my life has been wasted," Quinn said wryly. "There is a lot of really terrible advice out there that people are listening to because they don't know any better."

Research has shown that most disclosures don't work, Quinn said.

Investors "tend to assume that their adviser is a really great person," she says. "It is so easy to take advantage of a person who is unsure of the ground he or she is standing on."