{"id":355,"date":"2010-08-22T21:04:21","date_gmt":"2010-08-23T04:04:21","guid":{"rendered":"http:\/\/fiduciarydutiesblog.com\/?p=355"},"modified":"2010-08-22T21:04:21","modified_gmt":"2010-08-23T04:04:21","slug":"a-fiduciary-duty-for-all-investment-professionals","status":"publish","type":"post","link":"https:\/\/fresnolawyerblog.com\/?p=355","title":{"rendered":"A Fiduciary Duty for All Investment Professionals?"},"content":{"rendered":"

Wading hip deep into the debate over the standard of conduct applicable to investment advisors, author Kristina A. Fausti brings helpful insight in A Fiduciary Duty for All<\/strong>?<\/p>\n

Ms. Fausti is the Director of Legal and Regulatory Affairs for Fiduciary360<\/a>, and is knowledgeable about the investment world.<\/p>\n

What she demonstrates is that the investment world is not equally knowledgeable about fiduciary standards, even at the highest levels of the Securities and Exchange Commission, which shows bone-headed ignorance regarding fiduciary obligations.<\/p>\n

Ms. Fausti shows her expertise when she notes that \u201cBroker-dealers [ ] often have competing interests with their customers that they neither must avoid nor disclose in most cases.\u00a0 For example, as Professor Mercer Bullard noted, an investment adviser would be required under the fiduciary standard to disclose any differential compensation it receives as the result of recommending different products to its client because of the conflict of interest such differential compensation creates.\u00a0 Broker-dealers, however, generally have no such obligation to disclose differential compensation to their clients<\/strong>.\u201d<\/p>\n

Now that is what the fiduciary standard really means \u2013 full, complete, and candid disclosure.\u00a0 And that scares the heck out of Wall Street.<\/p>\n

Ms. Fausti notes that \u201cthe Obama Administration\u2019s plan called for legislators and regulators to \u2018harmonize\u2019 the investment adviser and broker-dealer regulatory regimes.\u201d\u00a0 The investment community has thrived in the confusion of a post Glass-Steagall era<\/a>. \u201cThe Administration\u2019s recommendations were based on the widespread recognition that retail investors are often confused about the differences between investment advisers and broker-dealers<\/strong>.\u201d<\/p>\n

That statement is as right as rain.\u00a0 \u201cThe RAND Report issued by the SEC in January 2008 [ ] concluded that investors did not understand key distinctions between investment advisers and broker-dealers, including their duties, the titles they use, and the services they offer.\u00a0 Also contributing to investor confusion is the ambiguity and inconsistency in titles used across the financial services industry<\/strong>.\u201d<\/p>\n

What, then, is the delay in establishing such harmony?\u00a0 The desire of the financial services industry to maintain confusion.\u00a0 \u201cIn practice many financial professionals use varying titles to describe themselves including: financial advisor, financial consultant, advisor, financial planner, and stockbroker.\u201d<\/p>\n

\"Ethiopia\"<\/a><\/p>\n

Author Fausti sees the ball clearly.\u00a0 \u201cIn its most basic form, to act as a \u2018fiduciary\u2019 is to serve under an already defined standard based on a relationship of trust that carries with it duties of loyalty, due care, and utmost good faith.\u201d<\/p>\n

Yes, but don\u2019t forget that those are aspects of the fiduciary obligation, in other words, the duties and consequences that flow from a finding that the parties occupy a fiduciary relationship.<\/p>\n

Sadly, SEC Commissioner Luis A. Aguilar<\/a> lacks similar clarity of thought, having \u201cpassionately emphasized\u201d that \u201cthere is only one fiduciary standard and it means that a fiduciary has an affirmative obligation to put a client\u2019s interests above his or her own.\u201d<\/p>\n

Wrong, wrong, wrong.\u00a0 That is simply sloppy thinking.\u00a0 By an SEC Commissioner.<\/p>\n

In contrast, these guys get it right.\u00a0 Says the author, \u201cA group of advisory and investor advocates, dubbed the Committee for the Fiduciary Standard, recently articulated a set of five core fiduciary principles: (1) put client\u2019s interest first, (2) act with prudence, (3) do not mislead clients, (4) avoid conflicts of interest, and (5) fully disclose and fairly manage unavoidable conflicts.\u201d<\/p>\n

OK, now we are back on track.\u00a0 \u201cWhat these principles illustrate is a basic relationship based on trust that demands that loyalty and due care always remain at the foundation of the fiduciary standard.\u201d<\/p>\n

SEC Commissioner Elisse B. Walter<\/a> \u201chas noted that what is required under the fiduciary duty depends on the scope of the engagement as well as the sophistication of the investor.\u201d<\/p>\n

Wrong again.\u00a0 If someone is in a fiduciary relationship, then the expertise or knowledge of the beneficiary matters not one whit.\u00a0 The beneficiary gets to put complete trust in his or her fiduciary, and never has to defend his own interests because he is a \u201cbig boy\u201d (the so-called \u201cbig boy\u201d defense).<\/p>\n

It\u2019s simply gobbly-gook for the investment community to claim differing duties \u201cwhere a financial professional is a \u2018dual hatter,\u2019 [which] is meant to refer to a professional who is registered both as a broker-dealer and an investment adviser representative and who, therefore, switches professional hats for different services and products.\u201d<\/p>\n

According to Wall Street, \u201cthe professional would be a fiduciary and subject to Adviser Act and the fiduciary duty when providing investment advice, but subject to Exchange Act and FINRA rules when executing recommended transactions; thus, switching back and forth between acting as a fiduciary.\u201d<\/p>\n

That is just impossible.\u00a0 A mainstay of the fiduciary standard is the duty of care.\u00a0 The fiduciary looks out for his or her beneficiary, not the other way around<\/strong>.\u00a0 Wall Street\u2019s proposal (which proposal is not backed by Ms. Fausti, may I add) is voodoo.<\/p>\n

One standard for all financial advisers.\u00a0 One set of obligations, anchored in duties of care and disclosure.\u00a0 That\u2019s not so hard.\u00a0 But it scares the hell out of Wall Street.<\/p>\n

Kristina A. Fausti, A Fiduciary Duty for All?<\/strong>, in 12 Duquesne Bus. Law Rev. 183<\/em> (Summer 2010)<\/p>\n","protected":false},"excerpt":{"rendered":"

Wading hip deep into the debate over the standard of conduct applicable to investment advisors, author Kristina A. Fausti brings helpful insight in A Fiduciary Duty for All? Ms. Fausti is the Director of Legal and Regulatory Affairs for Fiduciary360, and is knowledgeable about the investment world. What she demonstrates is that the investment world […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6,7],"tags":[],"class_list":["post-355","post","type-post","status-publish","format-standard","hentry","category-economics","category-law-reviews"],"_links":{"self":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/355"}],"collection":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=355"}],"version-history":[{"count":0,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/355\/revisions"}],"wp:attachment":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=355"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=355"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=355"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}