SEC Backs Fiduciary Standard, Brokers at odds…
An SEC staff report filed last Friday night recommended the adoption of a regulation requiring a universal fiduciary standard of care no less stringent than that of what Investment Advisors are held to. If you’ve spent much time at all on Finacuity’s website, you’ve seen my harping on the fiduciary standard and explanations of why it’s so critical.
Currently, brokers (Morgan Stanley, Merrill Lynch, Edward Jones types) are only held to a “Suitability” standard. This means an investment must merely meet the loose requirements of what may be considered suitable as an investment for a client.
The new regulation however (if put into law) would mean all those holding themselves out to the public as providing investment advice would be held to a higher standard of care – a universal standard of care. This is indeed good news for the consumer of investment advice, but bad news for the brokerage industry (of which I’m proud to say Redrock is not a part of!).
It’s bad for the investment and financial services industry because their brokers (called financial advisor representatives) will be held to a standard of care that will open them up to lawsuits and mean they would conceivably be forced to recommend more prudent investment options for clients (those which don’t necessarily entail large commissions or fees).
In 2005 I completely removed myself from anything remotely resembling the brokerage industry and became a registered investment advisor. I did this solely to provide a higher quality experience to my clients, and take any conflicts of interest out of the way. I’ve been free to do what I feel is best and most prudent for nearly 6 years now, and for that I am thankful.
We’ll see how it unfolds, but the move by the SEC staff is a good one.