It's time for RIAs to shift the 'fiduciary' debate and make it about 'integrity'

That's a call to arms if I've ever heard one!

I don't think so. Fiduciary is a legal term which imparts tremendous protections in court for our fellow citizens. Integrity is not. Fiduciary is worth fighting for, if for nothing else, to draw a bright line between those really willing to look out for folks vs all the rest which is just marketing. Imagine doctors saying, "let's chuck the hypocratic oath and just use integrity". Seems ridiculous but that's just because you're used to your doctor looking out for you. Imagine if your advisor did.

I would agree with Mr Money- a couple of additional comments. 1- Fiduciary has been around for a long time...this is not new. It might be new to a confused broker/advisor world but not to those who have been serving in this capacity for a long long time 2- Process and protocol does exist which helps anyone document, demonstrate and defend their fiduciary standing. Again- this is not new. Imagine the doctor mentioned by Mr$$ not following procedure next time you have surgery. God forbid the surgery goes poorly and the doctor's defense is 'I am a MD of Integrity'...if you say so but we were hoping to have a surgeon. 3- Terms like 'trust me', 'I would never...' 'I have integrity' blah blah- make we watch my wallet.

Mr. Money, I agree that the fiduciary fight should be fought ... legally, legislatively. But rhetorically I think it's a weak hand. The unspoken strength of wirehouses is their sheer and consolidated market power. Might is right. But non-might, logically, is wrong. Might is an aspect of wirehouse "integrity" that is fast withering away and so RIAs can begin to integrate might-is-right into their own broader message of integrity. RIAs are good for consumers and the broader economy. Wirehouses, less so by the day. -Brooke

I concur with Mr. Money. "Fiduciary" is a legal term with hundreds of years of legal interpretation. Efforts exist to weaken the fiduciary standard. These include ongoing failures by the SEC, by non-enforcement of various provisions of the Advisers Act, including Sect. 2015, and by not adopting a sensible view of what constitutes "solely incidental" advice when applying the broker exclusion from the definition of investment adviser. Even many 12b-1 fees are "special compensation" - i.e., asset-based "advisory fees in drag." Other efforts exist from FINRA and several aspects of the broker-dealer community, in touting a "best interests" standard that is anything but in keeping the best interests of the CLIENT paramount. It would permit brokers to continue to advance their own best interests over those of their clients. The "casual disclosures" of conflicts of interest and lack of an informed consent requirement just cries out: "This is nothing more than suitability, re-casted in a way to mislead broker's customers to believe that they can trust their broker, and that they are not in an arms-length relationship." While efforts have, and continue to seek, a diminution of the fiduciary standard - there are many who are fighting back. I, for one, will oppose weakening and/or redefining of the fiduciary standard, and its obfuscation through deliberate acts by SIFMA, FSI, and others. I agree that integrity is important. Integrity is the blunt refusal to be compromised. It is doing the right thing when no one else is watching. It is a core behavior of one who adheres to the fiduciary standard, but it is not a replacement for the fiduciary standard itself. I would also note that the fiduciary standard is not a battle between RIAs and brokers. Rather, it is a battle for the American consumer of financial and investment services. The pro-fiduciary advocates make arguments that would create many more fiduciaries, thereby weakening their own market position. But they make these arguments to benefit the American consumer, out of the firm conviction that expert, trusted advice is necessary for our fellow Americans to successfully navigate today's complex financial markets. And, the realization that the broad imposition of the fiduciary standard will not only benefit our friends and neighbors directly, but also make more efficient the allocation of capital, lead to increases in capital formation over time, and provide a significant long-term boost to the American economy, jobs, and thereby facilitate the entrepreneurship and innovation that makes our country so great. So, while I appreciate the sentiments expressed in Brooke's article - for without integrity it is often said that a person has nothing - I do not concur that the time has come for us to abandon the fiduciary battles. These battles are important - for the future financial lives of our fellow citizens, and for the economic vitality and advancement of America itself. And for our emerging profession. Let us not abandon these efforts, even in the face of an adverse political climate. Rather, let us continue this advocacy. For what is right will, in the end, prevail, as long as we persevere.

Brook, RIA's are eating wirehouses' lunch because people understand that they have higher integrity. You can feel it. I say we just keep kicking their rear ends with our superior business model and ethics.

Sorry for the name misspelling Brooke.

Fiduciary standing in the context of Wall Street does not exist. It is true Wall Street doesn't care because it is the individual broke'rs reputation and trustworthiness is on line. Wall Street is insular to the best interests of the investing public until it isn't. Thus. at the moment it is up to RIAs to win our case in the free market until it is in the enlightened best interest of Wall Street to afford the same consumer protections and statutory financial services provided by advisors. It simple: the advisor's low cost, high value-added services best the broker's high cost, low value-added services. The investing public want ongoing accountability for recommendations. SCW.

Only when it is in the enlightened best interest of Wall Street to support fiduciary duty and the professional standing of the broker when rendering advice will we see the best interest of the investing public (as defined by statute) will be served. T he regulatory framework is governed by a political process controled by the brokerage industry and will not change regardless of the facts. Thus it is up to the free maket and RIAs make their case based on the overwhelming facts in support of fiduciary duty and the ongoing accountability for recommendations, brokers so fear. SCW

While I like the idea of "integrity", to me it has a moral component that isn't measurable and is simply too aspirational. What I would like to see is for the industry to migrate from fiduciary to measurement of efficacy. Being an RIA requires passing the Series 65. Anybody can pass the Series 65. It's a very very low bar. You can operate as a fiduciary and still be HORRIBLE at what you do and provide awful advice, sell awful products, and do clients enormous harm. There's nothing about the fiduciary standard of care that ensures that the solution/service an individual delivers is actually any good. Designations like CFA and CFP at least ensure a level of education and knowledge, but even those don't actually do anything to ensure that the services/solutions the practitioner delivers are any good. I've had too many conversations with advisors, both wirehouse advisors and RIAs, that I thought were dumber than a bag of rocks and had a practice or investment philosophy that I thought was horribly wrong and destructive to clients. "Fiduciary" does nothing to address that.

Randy, good comments. I concur with your thoughts, in part. The fiduciary duty of due care actually varies, actually, depending upon the law applied. Under the DOL rule, the Prudent Investor Rule applies. This is about as tough as it gets. It means not wasting the client assets, and minimizing idiosyncratic risk. It's a very, very tough standard of care that, quite frankly, many advisers are not adhering to at present. By contrast, under the Advisers Act, an adviser must possess a "reasonable basis" for an investment strategy and in undertaking due diligence for products. What constitutes a "reasonable basis" is largely subject to interpretation, and is informed by state common law. Other sources of interpretation flow from the rules adopted by (voluntary) professional associations. For example, many (many, many) firms disavow any provision of "tax advice." But can this be done? At least one reported court decision held a CPA liable for providing investment advice that caused a significant tax burden to the client. (And there are not a lot of decisions in the area, given the existence of arbitration.) Additionally, since the Series 65 exam tests knowledge and application of personal income taxes, one might opine that this assists in setting the standard of care. As do the content of the CFP exam, PFS exam, CFA exam, etc. The SEC permits firms to "disclaim" away parts of their duty of due care. In my view, this is not permitted: (1) Under Section 215 of the IAA, which has an anti-waiver clause; and (2) under state common law, under which the principles of waiver and estoppel possess limited application to fiduciary relationships. While the SEC's views (some of which are expressed only by non-enforcement of the IAA's provisions, and not overtly) inform state common law, they don't control it. And the state common law of fiduciary is where claims are brought (outside of ERISA, applicable to ERISA-governed accounts and to IRA rollovers from ERISA-covered accounts), for the Advisers Act does not possess a private right of action. Nor do the current DOL rules provide for a contractual private right of action, as to the ongoing management of IRA accounts. In the end, it is we - as professionals - who need to proscribe for ourselves our fiduciary standard of care. We need to take control of the future of our professional standards of conduct. As experts in financial planning and investment advice, we possess the ability to define our own fiduciary standard of care, at least to a degree. Let's work on that. Through best practices. By illustrating proper cost-benefit analyses in the due diligence processes. Through speaking out about "what should be the standard." And - as you suggest - by raising the standards for exams and admittance to this emerging profession.

Randy, I completely agree thus the challenge of all professions. How do we make that assessment without a definition of advice (financial services) authenticated back to statute. We need a professional standard that goes beyond aspirational financial planning. SCW