PALM BEACH, FLA. -- Bring up the term "fiduciary standard" at a conference with hundreds of RIAs and you will be sure to get shaking heads, looks of worry and disappointment, and fiery debate.
The fiduciary standard was a hot talking point at TD Ameritrade Institutional's Fiduciary Leadership Summit in Palm Beach, Fla., where dozens of advisors gathered this week to discuss the Uniform Standard of Care and Rule Harmonization for broker-dealers and RIAs being debated on Capitol Hill.
In an exclusive interview, Skip Schweiss, managing director of advisor advocacy at TD Ameritrade Institutional, spoke about the tensions, dangers and future outlook of the fiduciary standard being debated in Washington -- and how the decision might drastically alter the advisory landscape.
What is the biggest tension that the advisory industry is facing from a regulatory point of view?
The number one issue advisors tell us they worry about is the potential of becoming subject to a rules-based standard and regulatory regime. This would have the most direct impact on registered investment advisory firms. The principles-based fiduciary standard, with its origins in the Investment Advisers Act of 1940, has worked very well for investors who hire fiduciary advisers to help guide them in their financial decisions. That standard is higher than the brokers' suitability standard and should not -- under any circumstances -- be lowered.
A broad coalition of advocacy groups is calling on the Securities and Exchange Commission to forge ahead with an expansion of a fiduciary standard to hold broker-dealers to identical standards of care for retail client that are already imposed on investment advisors. Is the SEC proceeding down the wrong path?
It's hard to tell at this stage, even though we are approaching the three-year anniversary of the Dodd-Frank Act, and this issue has been a pretty hot topic for well over a decade! At this point the SEC is gathering data and input in order to inform its rulemaking process, which of course is entirely appropriate.
Will path be changed?
It's hard to say that the SEC is even on a defined path that will or won't be changed. The path it appears to be on at this point is one of gathering information and data to help inform its decision. It's entirely appropriate that it is seeking input from investors and industry to help inform its decision process.
Is there a danger that the SEC might develop a fiduciary standard for the entire industry but that it might weaken the RIA standard while increasing broker-dealer disclosure.
Congress gave the SEC a very difficult task through the Dodd-Frank legislation: to consider (not mandate) a uniform fiduciary standard of care for brokers and advisers when providing advice about securities to retail investors... a standard of care that is "no less stringent than" the '40 Act that advisers have operated under since 1940, but isn't the '40 Act. The one thing that we feel is unacceptable would be to lower the standard to something lower than the '40 Act. Investors deserve better.
What did you aim to accomplish with the Fiduciary Leadership Summit?
Two things motivated us in producing the Summit: one, that the investors' view is too often left out of the debate, and that any discussion of a fiduciary standard of care should start with the investor; and two, that while there are many voices -- heard through many mediums -- no one yet has convened all those voices in one room at one time so everyone could speak to the others, and listen to the others, and have constructive in-person discussion. I'd say we accomplished those objectives.
Will you host a Fiduciary Leadership Summit next year?
As we speak it's only a couple of hours after the close of the event, and we have asked meeting participants to follow up with us in coming days on their feedback about the event. From our vantage point it was very valuable time spent, and we would certainly consider doing it again, especially if it can be of value in the larger financial services industry debate around a fiduciary standard for investors.
What where the takeaway points that came out of this year's event on the role of disclosure and the management of conflict of interest?
We had a panel of retail investors and asked them how they view disclosures and if their financial services provider talks with them about potential conflicts of interest. The general consensus from the group was that a stack of annual reports and tiny print don't serve to inform investors about potential conflicts of interest.
Are you afraid that what TD Ameritrade is doing -- in terms of advocating for a fiduciary standard/helping RIAs -- might help the institutional side of your business but hurt the retail side?
Our feelings and messaging to policy makers are aimed first and foremost at investors. We serve investors directly through the retail side of our business, and indirectly through the advisor custody side of our business, so we are completely comfortable with the alignment of our approach across our business lines.
What are the three most important themes/challenges addressed at the fiduciary summit and how were they resolved?
- We heard from retail investors which offered a real world perspective on the key issues in front of us; the need to improve investor protections without adding to the confusion that already exists.
- There was a need and agreement among the participants to come to some common ground and work together for the benefit of investors.
- This is obviously a long process -- a marathon, not a sprint -- and we need to stay engaged with all stakeholders to ensure we end up in a place where investors have maximum protections consistent with efficient regulatory oversight of the financial services industry.
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