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21 Jun 2019

Fiduciary no more? What RIAs can tell clients after new rule By Ann Marsh

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Post by MoneyRadio Staff

Can RIAs tell clients they’re fiduciaries?

That the SEC had to furnish an answer this week — to a question about a status quo never before in doubt — is another sign of the upheaval generated by the commission’s new Regulation Best Interest rules package.

The latest flap developed over language contained in the introduction to Form CRS, a disclosure document that the SEC will require advisors and brokers to provide clients. The wording prompted alarm that it could specifically prohibit the use of the term fiduciary.

Wealth managers voiced their concerns on Twitter and elsewhere. TD Ameritrade’s Skip Schweiss, after spotting the word “eliminating,” tweeted a screenshot of the controversial regulatory phrasing.

The SEC said “we are substantially revising our approach to disclosing standard of conduct and conflicts of interest to make this information clearer to retail investors, including … eliminating the word ‘fiduciary’ and requiring firms — whether broker-dealers, investment advisors or dual registrants — to use the term ‘best interest’ to describe their applicable standard of conduct.”

“There it is,” Schweiss, who runs TD Ameritrade Institutional’s retirement plan business, tweeted. “RIAs will not be able to use the word ‘fiduciary’ to describe the standard of care they owe clients.” A spokesman for TD Ameritrade said Schweiss was not available for further comment.

In the investment advisory and law professions, fiduciary refers to the legally binding requirement to put a client’s interests before those of her planner or lawyer.

Asked about the disclosure language, the SEC provided the following statement assuring RIAs they can indeed call themselves fiduciaries: “Investment advisors are fiduciaries, recognized and regulated as such by the commission. Recent commission action does not prohibit investment advisers from calling themselves fiduciaries.”

Though the rules package was passed June 5, revelations are still forthcoming as industry insiders digest its more than 1,400 pages.

The regulator has faced a barrage of criticism from consumer advocates and some advisors over its Regulation Best Interest rules package, which included the aforementioned Form CRS as well as new regulatory guidance and interpretation. Critics have lamented that the rules fall far short of what they deem necessary investor protections. They’ve also accused the SEC of gutting RIAs’ fiduciary duty by amending requirements to permit advisors to satisfy their obligations through disclosure alone. Regulation Best Interest, which is not a fiduciary standard, relies heavily on disclosure to satisfy its requirements.

Wall Street firms and lobbying groups have generally supported the SEC.

The commission provided additional detail on the intent behind the controversial language to the Investment Adviser Association, which requested its own clarification: “Advisors may still use the term ‘fiduciary’ in [client relationship] Form CRS to further elaborate on the duties owed to their clients, for example when discussing conflicts of interest,” the association’s spokesman, Herb Perone, quoted the commission as saying in a release it circulated.

Had the SEC banned use of the word, that could have lead to a constitutional challenge, says Ron Rhoades, director of the financial planning program at Western Kentucky University.

“Commercial speech can be regulated,” he says, “but it is still protected under the First Amendment.”

Ann Marsh

Ann Marsh is a senior editor and the West Coast bureau chief of Financial Planning. Follow her on Twitter at @Ann_Marsh.

This article is suggested reading by Secured Financial Services, LLC and President and Chief Executive Officer of Secured Financial Solutions, LLC, Anil Vazirani. Please visit https://secured-financial-solutions.com/

Retire and Stay Retired Safe! Smart! Secure!

Based in Scottsdale, Arizona, Secured Financial Solutions is one of the leading financial service firms in Arizona, catering to the financial planning needs of retirees and pre-retirees.

One of the benefits you can count on when working with one of our financial advisors is an outstanding personal relationship with an advisor. As a client, you will deal directly with a financial advisor who will take the time to understand your situation, objectives, estate planning, and retirement planning needs as well as your risk tolerance. We work directly with other advisors as well as CPAs, attorneys and trustees, to ensure that the investments we make will align with your estate plans, and that you are not faced with heavy tax burdens.

You can expect Secured Financial Solutions to develop comprehensive solutions to your complex wealth management and estate planning needs. Our one-on-one approach helps you achieve your financial planning goals, including maximizing your estate, retirement planning, minimizing your tax obligation, and continuing your family legacy. Our investment advisors will work with your CPA, attorneys, and other trusted professionals to help you make intelligent choices that align with your financial and personal goals.

This article is suggested reading by Secured Financial Services, LLC and President and Chief Executive Officer of Secured Financial Solutions, LLC, Anil Vazirani. Please visit https://secured-financial-solutions.com/

Retire and Stay Retired Safe! Smart! Secure!

Based in Scottsdale, Arizona, Secured Financial Solutions is one of the leading financial service firms in Arizona, catering to the financial planning needs of retirees and pre-retirees.

One of the benefits you can count on when working with one of our financial advisors is an outstanding personal relationship with an advisor. As a client, you will deal directly with a financial advisor who will take the time to understand your situation, objectives, estate planning, and retirement planning needs as well as your risk tolerance. We work directly with other advisors as well as CPAs, attorneys and trustees, to ensure that the investments we make will align with your estate plans and that you are not faced with heavy tax burdens.

You can expect Secured Financial Solutions to develop comprehensive solutions to your complex wealth management and estate planning needs. Our one-on-one approach helps you achieve your financial planning goals, including maximizing your estate, retirement planning, minimizing your tax obligation, and continuing your family legacy. Our investment advisors will work with your CPA, attorneys, and other trusted professionals to help you make intelligent choices that align with your financial and personal goals.