Failed Experiment at the SEC

Iíve been indulging my guilty pleasure lately by reading about the SECís complicated history with the fiduciary standard. Ron Rhoades of Alfred State College (and chairman of the Committee for the Fiduciary Standard) and W. Scott Simon, author of The Prudent Investor Act: A Guide to Understanding, have been blogging about this extensively, but hereís the CliffsNotes version: When the SEC was created, there was no question that the intent was to separate brokers and stock touts from ďhonest advisorsĒ in the nationís regulatory scheme.†

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Comments (7)
The genie climbed out of the bottle in 1975 when commission rates were deregulated and Customers Men became product salesmen. The only measurement then and now is the production of revenue. Hence, the all powerful sales culture. Fiduciary standards would negatively impact the production of revenue. End of story.
Posted by Jack W | Tuesday, August 19 2014 at 10:19AM ET
As I was reading this I was struck by how well written it is...not surprising. One thought I have which may seem sophomoric but here goes. Full disclosure pertaining to how the advisor/house/ broker is compensated would alleviate much of this. If the advisor/broker/house is compensation in any way shape or form via the placement of product they are a broker/ third party marketing firm and therefore not a fiduciary. If, the broker/advisor/house is compensated purely for advice and receives no compensation from the placement of investment product- they are an advisor and therefore act in a fiduciary capacity.

Now the quality of the advisor's advice could be all over the map- however- at a minimum the advisor would need to document and defend whatever process they employ. If anyone is interested we have established the "Fiduciary 10 Commandments' which are actionable do's and don'ts. You can contact us at

One final thought is pertains to the duel registered BD/RIA. Those have the potential for an incredible amount of abuse- that is not to say all dual registers are not so nice.
Posted by Pat M | Tuesday, August 19 2014 at 11:28AM ET
Hi Bob,
Your articles themselves are often my guilty pleasure, as you tell 'em as you see 'em, usually in a rather dim light.
Over the past 20+ years (yes, as a very lonely female in a group of salesmen) I have watched this battle rage on, many -often worthy-attempts at conciliation notwithstanding, and I find it all so political and Washington-esque....I have always been so naive as to think that it is possible to get a group of children to play well together in a sandbox if the sandbox is big enough. Our sandbox is certainly big enough, and the research shows that investors want to work with professionals whom they trust. Don't we all? Why can't we just say we are fiduciaries (if we are) and run our practices that way? Isn't it just the right thing to do, you know, to put the client first? I can't even believe we are arguing over this. Shameful. Not to mention bad PR. And those who want to remain in a broker-type capacity could simply explain that no, they do not believe in putting their clients first, they are just doing the best they can to feed their families (own a big home, drive a fancy car, keep up their coke habit, whatever). Just sayin'.
Best to you, Bob, please continue to keep things in perspective for us out here on the front lines. Can't wait to hear your thoughts on the new CFP Board Planning Center. - Diana Simpson, MBA, CFP(r)
Posted by Diana S | Tuesday, August 19 2014 at 1:30PM ET

You are so far off base my friend. Stockbrokers, Account Execs, Fin. Advisor's or what ever you want to call them were acting in a fiduciary capicity going back to the 1970's. Senior advisors at the Wall Street firms and the regionals were into relationship building way back then (1976 the world of commissions changed). The The Merrill Lynch bull was the sign of trust. FA's gathered assets by the billions. The Lawyers in the puzzell places in New York looked the other way for decades when they knew damm well that there was a fiduciary relationship going on. Believe me, the FA's were not glorified order takers or "bond daddy's" There may have been a few but the conversion over the years has been dramantic and Finra and the SEC knew about it. But, the Tully commission out foxed'em. The Financial planners and the RIA crowd started screaming 20 years ago. The SEC is so good they let Allen Stanford pull a ponzi scheme when they knew about that too. FA's build strong relationships. Their clients trust them. They lean on them for advice. Chip Mason's firm....Legg Mason use to have a commercial saying we SELL advice. Mrs White is right out of the bureaucratic glob. She will not tackel the big firms believe me. Look to the lawyers and compliance teams to keep things as they are. Don't be fooled!
Posted by Robert A | Tuesday, August 19 2014 at 4:24PM ET

The solution is not with Mary Jo White or the SEC but with the free market. There is nothing preventing the development and support of an expert authenticate fiduciary standard. There are enough brokers and advisors who actually render advice who would subscribe. Let the brokerage industry respond why they have no ongoing responsibility for their recommendations and why they are not acting in the clients best interests as required by statute, case law and regulatory opinion letters. Since Adam Smith introduced the "invisible hand" in 1776 (the age of enlightenment) there has never been a case in a free market where the best interest of the investing public has not prevailed.

What is missing is the leadership to create large scale institutionalized support for fiduciary standing which would make advice safe scalable, easy to execute and manage. The benefit is advisors gain control over their value proposition, cost structure, margins and professional standing at a lower cost than packaged advice products so prevalent in a brokerage format.


Stephen Winks
Posted by Stephen W | Wednesday, August 20 2014 at 11:45AM ET
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