PALM BEACH, Fla. -- The future of a uniform fiduciary standard regulating the broker-dealer and RIA space is unlikely, according to Barbara Roper, director of investor protection for the Consumer Federation of America.

"And I am intensely discouraged," she said at TD Ameritrade's Elite Advisor Summit in Palm Beach, Fla. 

Roper's comments come as the July 5 deadline is approaches for comments on a SEC cost-benefit analysis of a potential uniform fiduciary standard contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the current regulatory environment, while RIAs have been held under a fiduciary standard, broker-dealers have been held to a suitability standard. In other words, a broker-dealer can sell a "suitable" product to a client when there is a lower-cost, better option available, said William Garvey, an RIA and chief investment officer of Hilton Capital Management."The loser here is the public." 

"RIAs want a fiduciary standard across the industry to avoid conflicts of interest, but on the whole they don't want more regulation that may come with it because it would lower their competitive advantage," he said. 

Roper's sentiments also point to the frustrations and tensions present within the financial advisory space -- with RIAs on one side -- who traditionally have been largely spared from regulatory scrutiny compared to more heavily regulated broker-dealers -- about 8% of advisors typically being examined per year, according to Tim Welsh of Nexus Strategy, a consulting firm to the wealth management industry, with 40% of RIAs that never been examined. "The thinking among regulators traditionally has been that RIAs aren't selling products and investments -- unlike broker-dealers. "It can be a case of compliance arbitrage," Welsh said. On the other side, the wirehouses, already facing an exodus of talent into the RIA space, are clamoring for a more level playing field to potentially save their businesses from being threatened, according to Welsh. 

Last year, Charles Schwab Corp. released a study, which found that three out of four wirehouse advisors would take action if a recruiter called them about the prospect of joining an RIA. More recently, according to Fidelity's second annual Insights on Independence study conducted earlier this year, advisers who went from a wirehouse to an independent registered investment adviser or an independent broker-dealer saw compensation increase 36% since 2008.


Increased regulatory oversight on RIAs may be in the best interests of wirehouses, which have long been suffering from a talent drain, many attendees at TD Ameritrade's Elite Advisor Summit said. The reason? Because it would help level the playing field and reduce RIA competition. 

So, wirehouses will be lobbying hard to push for a more level playing field, according to Welsh and others. In a nutshell, advisors said, they feel threatened by the wirehouses when it comes to regulatory lobbying efforts. "Wirehouses are better organized. There are simply more of them. And they have deep pockets," said Welsh.


If Congress fails to adopt a uniform fiduciary standard for broker-dealers and investment advisors, or, as an alternative, (which is also being proposed), changes the very meaning of the fiduciary standard, making RIAs and brokers subject to a uniform standard that would be rules-based, RIAs note that clients will suffer. A recent editorial in Financial Planning by Barry Glassman of Glassman Wealth Services, for example, explained that changing the meaning of the fiduciary standard may "weaken the current obligation of RIAs to act in the best interest of their clients." He wrote: "The sad fact is that watering down the fiduciary standard will not provide additional protection for the investor."

"We're still nervously watching Congress on the fiduciary standard debate, and we will be until a decision is finally made," said Glenn Kautt of Savant Capital Management. "In the end, the modified fiduciary standard will not benefit the consumers -- it will purely benefit the regulators while passing on more costs to our clients," he said.

Read More:

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access