Why did The Committee for the Fiduciary Standard form and what is its objective?
The Committee formed last year to advocate for the authentic fiduciary standard as presently established under the Investment Advisers Act of 1940.
The Committee seeks to help inform and nurture a public discussion on the fiduciary standard. Its objective is “to ensure that any financial reform regarding the fiduciary standard, 1) meets the requirements of the authentic fiduciary standard, as presently established in the Investment Advisers Act of 1940, and 2) covers all professionals who provide investment and financial advice or who hold themselves out as providing financial or investment advice, without exceptions and without exemptions.”
The Committee is led by a steering group of practitioners and experts.
What is the Committee doing to accomplish its objective?
The Committee is mounting a campaign to talk to the media, legislators, regulators, investment professionals and investors about why the five core fiduciary principles are vital to investors and should be an integral part of reform. We are also urging investors, professionals and all interested market participants to support the five core fiduciary principles.
The five core principles are:
- Put the client’s best interests first
- Act with prudence; that is, with the skill, care, diligence and good judgment of a professional
- Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts
- Avoid conflicts of interest; and
- Fully disclose and fairly manage, in the client’s favor, unavoidable conflicts.
What has the Committee accomplished?
We have provided an independent and authoritative voice, research and policy education on fiduciary issues that has attracted the attention of the media, the SEC, Congress, the Department of Treasury and the Department of Labor. Our message focusing on the five principles and the vital importance of the authentic fiduciary standard is resonating with policy makers and investors.
Who is funding the Committee?
The Committee was initially fueled entirely by its founding members’ volunteer efforts. In 2010, the Steering Group and Board of Advisors determined a modest budget was necessary and contributed funds for that budget. This year the Committee is proud to recognize TD Ameritrade Institutional, a firm that has spoken out for the fiduciary standard for many years, as a financial supporter of the Committee.
Why is the Committee undertaking this mission? Are there other organizations doing the same thing?
There are many groups doing great work. To our knowledge, no other organization is solely dedicated to policy education on and advocacy for the authentic fiduciary standard, explaining why it is so vital, and whose leaders include recognized fiduciary experts.
Why is the fiduciary standard vital?
Because we believe all investors should have access to advice that is in their best interests. Investors need financial help planning their retirement and must be able to count on professionals they can trust, just as they need to count on doctors to handle their health concerns. The authentic fiduciary standard legally requires an investment adviser to act, under the Investment Adviser Act of 1940, as a medical doctor would, completely in their clients’ best interest.
In contrast, the “arms length” suitability standard allows a broker or advisor to recommend clients products that are in the best interest of their firm. This difference is a stark. If an investor is wronged by a broker, the burden is on the investor to prove the broker’s wrongdoing; if the investor is wronged by a fiduciary advisor, the burden is on the advisor to prove they acted in the client’s best interest.
These opposing roles have practical consequences for investors. The investment advisor or RIA is required to put investors’ best interests first; act in a prudent manner; disclose conflicts and all important facts; avoid or manage in the investor’s interest all material conflicts; disclose fees and control expenses; follow and document a due diligence process in making decisions; and diversify investments. A broker, just meeting the minimum legal requirements, has no such duties.