SIFMA Proposal Falls Short in Protecting Investors, Says Fiduciary Group in Letter to Congress

October 20, 2009

Wall Street Lobby Seeks to Cut out Critical requirements of Disclosure, Managing Conflicts and Controlling Expenses in its Standard for Brokers Giving Investment Advice, says The Committee for the Fiduciary Standard

 The Committee for the Fiduciary Standard, an independent panel of industry executives, today warned Congress that the position taken by Wall Street’s main lobbying arm on an Administration proposal to raise standards of brokers who give investment advice “demonstrate an apparent lack of understanding and / or commitment to, such fundamental fiduciary duties as full disclosure, the obligation to manage conflicts in the investor’s interest, and consideration of expenses in investment decisions.”

The Securities Industry and Financial Markets Association’s (SIFMA), position means “Absent these explicit fiduciary duties, investors interests will be demoted to second place,” Knut A. Rostad, Chair of the Committee for the Fiduciary Standard, and the Regulatory and Compliance Officer at Rembert Pendleton Jackson, said in a letter from the Committee to the Chairmen and Ranking members of the House Financial Services and Senate Banking Committees.

Rostad noted: “The authentic fiduciary standard (AFS) requires the legal obligations of ‘prudence’; SIFMA’s does not. The AFS requires disclosures of all material facts; SIFMA’s does not. The AFS requires advisors to control investment expenses, to disclose conflicts and also always attain fully informed client consent, and to manage conflicts in the client’s interest. SIFMA’s standard, unfortunately, does not.”

In connection with its letter, the Committee for the Fiduciary Standard, today released an analysis of SIFMA’s October 6 Congressional testimony  and comments on SIFMA’s views expressed by Kevin Carroll, Associate General Counsel of the trade group, in an October 7 webinar hosted by Wealth Manager. The analysis compares requirements of the authentic fiduciary standard, as established in law today, with the requirements SIFMA proposes brokers should meet (see table at

The Committee urges Congress, the Securities and Exchange Commission and the Financial Industry Regulatory Authority to require the authentic fiduciary standard for brokers who give investment advice and registered investment advisors.

Congress begins this week to mark up legislation to implement the proposal. Copies of the letter were also sent to Mary Schapiro, Chair of the Securities and Exchange Commission, and Richard G. Ketchum, CEO of the Financial Industry Regulatory Authority.

The Committee for the Fiduciary Standard was formed earlier this year to work to ensure that new legislation and rulemaking “meet the authentic fiduciary standard, as presently established in law.” It introduced five core principles of the authentic fiduciary standard:

  1. Put the client’s best interests first;
  2. Act with prudence; that is, with the skill, care, diligence and good judgment of a professional;
  3. Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts;
  4. Avoid conflicts of interest; and
  5. Fully disclose and fairly manage, in the client’s favor, unavoidable conflicts.

The Committee’s members are recognized leaders in the investment profession:

  • Blaine Aikin, fi360
  • Clark M. Blackman II, Alpha Wealth Strategies, LLC
  • Gene Diederich, Moneta Group
  • Harold Evensky, Evensky & Katz
  • Sheryl Garrett, Garrett Planning Network
  • Roger C. Gibson, Gibson Capital, LLC
  • Gregory W. Kasten, Unified Trust Company
  • Kate McBride, Wealth Manager
  • Ronald W. Roge, R. W. Roge & Company
  • Knut A. Rostad, Rembert Pendleton Jackson
Posted in Uncategorized | Leave a comment

Comparison of Authentic and “SIFMA” Fiduciary Standards

October 20, 2009


  • “Prudence” is required
  • Do not mislead; disclose all material facts (compensation, fees, expenses) in writing
  • Control investment expenses
  • Avoid conflicts, or disclose conflicts and always attain fully informed consent
  • Managing conflicts in client’s interest
  • Recognizes best execution in 40 Act As a fiduciary principle


  • “Good professional judgment”
  • Does not address in testimony.
  • Does not address in testimony.
  • Avoid conflicts, or disclose conflicts, only sometimes w/ client consent.
  • Does not require managing the conflict, except to disclose it, per testimony.
  • Rebrands fair dealing obligations, suita­bility, limited disclosures, supervision and training as “core fiduciary principles.”


  • “Prudence” carries a legal duty that “professional judg­ment” does not. SIFMA makes no mention of “prudence” in its testimony.
  • Carroll would not say SIFMA believes disclosure of fees is required; he suggests brokers’ “business model” may permit Brokers to not disclose compensation, fees, expenses, etc.
  • Carroll would not say SIFMA believes brokers must control investment expenses; he does say all businesses try to control business expenses, generally.
  • SIFMA suggests “consent” is only sometimes required. It does not say fully informed client consent is always required.
  • Fully informed client consent means a client understands costs, risks, and benefits of conflict, as well as available alternatives
  • Managing the conflict in the client’s interest is fundamental to duty of loyalty

*SIFMA position based on October 6 testimony.

+ Comments based on comparison of testimony with authentic standard and additional remarks by Kevin Carroll, SIFMA Managing Director, in October 7 Webinar.

Posted in Uncategorized | Leave a comment