Pamphlet For A Single Fiduciary Standard For Financial Advisors Could Be Recalled As A Seminal Document When The History Of The Profession Is Written Decades From Now

Sunday, May 19, 2013 14:12
Pamphlet For A Single Fiduciary Standard For Financial Advisors Could Be Recalled As A Seminal Document  When The History Of The Profession Is Written Decades  From Now

In a document that reads like a preamble to a single fiduciary standard for financial advisors, Ron Rhoades, an expert on the ethics of financiial advising, has spelled out legal, intellectual, and moral imperatives for regulatory action that would change the relationship between American consumers and advisors.

Rhoades’ immediate goal is to support the Department of Labor and Employee Benefits Security Administration effort to apply ERISA’s fiduciary standard of conduct properly. However, when the history of the financial advice profession is written decades from now, this document seems likely to be recalled as a seminal work.

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Rhoades, who holds a J.D. and CFP, serves as Program Director for the Financial Planning Program at Alfred State College in Alfred, New York, where he is an Associate Professor and teaches business law and advanced financial planning courses. He also owns an investment advice firm. However, in perhaps his most important role, Rhoades has become the financial advice profession’s leading ethicist.


Rhoades, in his blog, has written thoughtfully about applying a single fiduciary standard to all financial advisors. Often his posts take aim at Wall Street’s sales-oriented approach to financial advising, but’s he’s also criticized CFP Board for misleading consumers in ads about whether CFPs are obliged to act as fiduciaries always.


Rhoades’ post yesterday, entitled, “Common Sense Redux: The Legal And Economic Imperative Behind The DOL/EBSA's ‘Definition Of Fiduciary’ Re-Proposed Rule,” is a pamphlet. Taking a page from pamphleteers that since the 1500’s published on controversial issues, Rhoades makes an eloquent case for the moral imperative for applying a single fiduciary standard to all financial advisors in these three passages:


“Efforts to enhance financial literacy, while always worthwhile and important, will never transform the ordinary American into a wholly knowledgeable consumer of financial products and services,” says Rhoades. “Given the sophisticated nature of modern financial markets and complex array of investment products, it is not just the uneducated that are placed at a substantial disadvantage—it is nearly all Americans. Hence, other means are necessary to negate advantages brought on by information asymmetry.”

“Because of the vast information asymmetry, and the many behavioral biases consumers possess which deter them from effectively spending the time and effort to read and understand mandated disclosures, there exists a great need for financial and investment advice,” says Rhoades. “In such situations, our fellow citizens place trust and confidence in their personal financial advisor. It is right and just in such circumstances that broad fiduciary duties be applied to these financial intermediaries. The absence of appropriate high ethical standards for all providers of personal financial advice, whether to plan sponsors, plan participants, IRA account owners, or others, is a glaring current gap in the financial services regulatory structure.”

“Our regulators possess the authority and the ability to ensure that consumers are not misled by the use of titles and designations, and they should ensure that all those who hold themselves out as trusted advisors – or who actually provide advisory services—are bound to act in the best interests of their clients under the fiduciary standard of conduct.”



Comments (3)

There already is a single standard. The 1940 ACT.
brentb843 , May 20, 2013
The Investment Advisers Act of 1940 does not cover financial advisors working under the Securities Act of 1934--most of the nation's financial advisors. Advisors have two ways to practice, two regulators, and two standards of care--suitability ('34 Act) and fiduciary ('40 Act). It's cruelly confusing to consumers, which means it's bad for business. More on this to come.

agluck , May 20, 2013
Actually, most of the nations financial advisors are dually registered. Their firm choses to have them provide advice under the exception to the 40 Rule as a Registered Rep. Look at the Merrill Lynch 'rep as advisor' platform MLPA - it states it is a brokerage advisory program on the client statement. Sure the client is confused, but what is really causing the confusion?

Bad for business? After the Frontline story and others, my phone has been ringing off the hook. Investors were shocked to find out that only 15% of us must act in their best interest.

I will concede that just because you are fee only and a fiduciary does not automatically mean you are working in your client's best interests. Case and point are TAMP these advisors using TAMPs and why Future Advisor will eat their lunch.
brentb843 , May 23, 2013

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