In the aftermath of the credit crisis, there was a movement to regulate all investment advisors and brokers under a standard of care known as a fiduciary duty. A fiduciary duty is the highest standard of care in law requiring the fiduciary (the advisor or broker in this case) to exercise a high degree of loyalty, not to put his own personal interests before the duty and not to profit from such a relationship unless it is consented to.
Are we any closer to imposing a fiduciary duty on investment advisors and brokers? Sadly, and predictably, the answer is no. The Wall Street Journal reports that a SEC study recommending the imposition a fiduciary duty on investment advisors and brokers is opposed by several members of the commission as lacking sufficient evidence the duty is required.
The objection is grounded in the belief that a move to such a standard prematurely would run the risk of “… restricting retail investors access to affordable personalized investment advice and the range of products and services they currently enjoy…” (…and here one thought the multitude of products, some laden with unreasonably high fees, was the true problem…)
There is a rather funny passage in the article stating: “Brokers recently embraced the idea of being subject to a fiduciary duty, but dont want a standard that upsets the way they do business.” The very reason why we are having this debate is because of the way some brokers do business.
Most likely lobbying money from the financial industry will water down any regulatory measures by the SEC. Brokers and advisors may end up adhering to a fiduciary duty but with enough exemptions and loop-holes that it really is not truly a fiduciary duty.
In Canada, the securities regulatory lawyers cannot agree whether a fiduciary duty should be imposed statutorily or continue to be imposed case-by-case in litigation. The issue with the current regime of imposing a fiduciary duty via lawsuit is that it is generally one-off and there are access to justice issues- in the worst case scenario, an investor has no assets in which to pursue justice against their advisor. What good is the duty if the investor cannot afford their day in Court? Of course, there is the other issue of having to deal with multiple securities regulators in Canada versus just one in the United States.
Underlying the fiduciary duty debate is the Byzantine regulatory system currently in place: in the United States, investment advisors and brokers are subject to different regulatory regimes while in Canada mutual fund advisors and brokers have different regulators and sets of rules. Solving this bureaucratic overlap would be a step in right direction.
The morale of the story is always the same. No one will mind your money better than yourself. Regardless of whether you use an advisor or not, be an educated customer.
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