Is There a Fiduciary in the House?

Is anyone surprised at what is going on in Washington and in our industry?

It would seem that before we can make any real progress in raising the bar of our profession, there has to be developed some clear definitions of terminology, professional designations, understanding of crossover integration (RIA with BD affiliation), and a commitment to either challenge or accept  the reality.

Allow me to pose some issues for consideration…..

1. Is an Independent Registered Investment Advisor (RIA) different in   functionality than an RIA who is a registered representative or registered   with a broker-dealer?   

If so, how?

If affiliated with a broker-dealer, why?

2. Is the Independent RIA considered a fiduciary by registration? 

If yes, is this also true of an RIA entity that is an affiliate entity, or arm of a   broker-dealer? 

If yes, is this also true of the RIA who is registered with a broker-dealer?

3. Is an Investment Advisor Representative (IAR) operating as a registered representative under the broker-dealer RIA under the same fiduciary standards as the entity itself, or that of an Independent RIA?

4. Is the fiduciary standard (as we all know it, per regulatory authority) only applicable to those who only manage assets (give investment advice, or advise)?

5. Who is a Financial Planner, and how is that defined?

6. Who is a Financial Advisor, and how is that defined?

7. Is the responsibility for full disclosure only restricted to investment advice?

8. Is cash considered an asset?

9. Is life insurance or an annuity considered an asset?

10. If an RIA proposes that a client should move (invest) a cash asset into a life insurance or annuity contract, does this constitute investment advice?

11. Is there any responsibility for the RIA to assess risk management issues in the same fiduciary capacity which is to be applied to investment management?

12. Is the requirement of full disclosure restricted to the compensation issue, or does it (or should it) apply to any product and/or service being presented?

13. Does any industry, regulatory body or professional organization embrace an unbiased understanding of the full fiduciary environment created by the client – trusted advisor relationship?

14. Are the 5 basic principles of prudence on which most fiduciary responsibility is based so complex that it lacks the potential of our grasp?

15. What exactly is the “business” model that broker-dealers and insurance providers defend so vigorously?

16. Should we wait for politicians to set our standard of moral and ethical practice?

If so, what is their role model and experience of success?

17. Does the form of compensation determine fiduciary compliance, or is it the process in which the resolve to the objective has been developed?

18. Is the bias against commissions – a ‘product’ bias, or a ‘culture’ bias?

19. Is the bias against fee-only engagement – a ‘foundational’ bias, or a ‘culture’ bias?

20. Can the consumer differentiate the responsibilities of the relationship with what we currently present to them?

Most important questions for the practitioner:

21. Do we view fiduciary responsibilities as a burden, requirement, or desire?

22. Do we need to wait and hope for some sort of resolve, or can we take action individually to set our own standard of excellence?

Consider this: Every obstacle presents an opportunity.  With the consumer becoming more educated as to an advisor’s responsibility in a relationship, presenting a clear delineation of your standard versus the standard of others – will affect client growth.

Please feel free to comment and/or ask questions, by clicking on the ‘Leave a comment’ link below.

Published in: on May 7, 2010 at 5:41 pm  Leave a Comment