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Study Shows Advisers, Clients Benefit from a Fiduciary Standard Without Reduced Access to Services or Increase in Costs

Jul 08, 2013

In a letter to the Securities and Exchange Commission (SEC) submitted July 5, the Financial Planning Coalition said it would “vigorously oppose” attempts to weaken the fiduciary standard and submitted research showing a client-first standard does not limit advice to “mass market” clients. The study also revealed that broker-dealers working under a client-first standard experience greater success compared to those operating under a suitability standard and without a significant increase in their costs.

The study – conducted by the Aité Group – was part of the Coalition’s response to the SEC request for information (RFI). The letter and study can be found here. A fact sheet with highlights of the study can be found here.

In its letter, the Coalition – which is comprised of Certified Financial Planner Board of Standards, Financial Planning Association and the National Association of Personal Financial Advisors – stated that a “fiduciary standard will benefit retail customers or their financial advisers, and will not impose significant costs.”

“The ‘best interest of the customer’ standard should be the key feature of any uniform fiduciary standard of care,” the Coalition stated in its letter. “However, the RFI does not adequately recognize this central concept … Indeed the standard contemplated in the RFI is little more than the existing broker-dealer suitability standard supplemented by some conflict of interest disclosures.”

The Coalition reiterated its view that the current assumptions made by the SEC would “significantly weaken the fiduciary standard for SEC-registered investment advisers while adding few meaningful new protections for retail customers.”

“We vigorously oppose such an approach, because it would have negative consequences for retail customers,” said the Coalition, urging the SEC to promptly propose a uniform fiduciary standard that is consistent with the existing standard required under the Investment Adviser Act of 1940.

Other key points of the Coalition letter include:

  • The RFI’s focus on enhanced disclosure suggests that such disclosure is sufficient for fiduciary standard.  While disclosure of conflicts of interests is a beneficial and important step, disclosure alone is not sufficient to discharge an adviser’s fiduciary duty.
  • The Coalition letter identifies specific issues with the RFI’s assumptions and proposes an alternative set of assumptions for a uniform fiduciary standard consistent with Dodd-Frank and the Advisers Act.
  • The alternative standards of conduct and approaches discussed in the RFI are inconsistent with Section 913(g) of the Dodd-Frank Act.
  • The SEC should address harmonization of investment adviser/broker-dealer rules after it adopts a uniform fiduciary standard of care: the two issues are conceptually distinct and should not be linked.

The research submitted as part of the comment letter also indicates that “applying a uniform fiduciary standard on broker-dealers will have little if any effect on the availability of advice to customers.”

Those surveyed reported that broker-dealers who are already operating under the fiduciary standard “experience stronger asset growth, stronger revenue growth, and obtain a greater share of client assets than those that provide services primarily under a non-fiduciary model.”

The research also revealed:

  • A majority of brokers and advisers are already operating under a fiduciary standard.
  • Those brokers and advisers agree that the standard should apply when giving advice to retail consumers and that requiring this client-first standard has very little impact in deciding whether to serve “mass market” clients.
  • Conversion of fee-based brokerage accounts to fiduciary accounts shows that a fiduciary standard does not lead to increased costs or decreased services.

About the Financial Planning Coalition

The Financial Planning Coalition, a group representing over 75,000 stakeholders, is a collaboration of Certified Financial Planner Board of Standards, Inc. (CFP Board), the Financial Planning Association® (FPA®), and the National Association of Personal Financial Advisors (NAPFA) formed to advise legislators and regulators on how to best protect consumers by ensuring financial planning services are delivered with fiduciary accountability and transparency. To learn more, please visit www.FinancialPlanningCoalition.com.

CONTACT: Carolyn Sofman P: 202-585-2202 E: csofman@powelltate.com

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