The real facts about a fiduciary duty

But in spite of these substantial differences, when personalized investment advice is provided to individual investors, Congress and the White House determined in the Dodd-Frank Act that the different legally mandated regulatory regimes should be harmonized into one standard.
 
That means that, when writing the fiduciary standard, the SEC must take into account that a broker or an investment advisor works under different business models and that a one-size fits all approach simply will not benefit the individual retail investors they serve.
 
SIFMA (The Securities Industry and Financial Markets Association), the leading trade association I chair, conducted a study on how individual investors currently choose to purchase their investments and investment advice. That study was as conclusive as it could be — 95 percent prefer to work with a broker-dealer and use the commission model over an investment advisory with the fee-based model. Indeed, individual investors with less to invest choose the broker-dealer model over those with larger amounts.  That’s not to say one model is necessarily better than the other; in fact, most brokerage firms offer both types of services. It does mean, however, that investors themselves have made their preference unambiguously clear and that any new uniform standard of care should respect that choice.
 
While some have argued that the Dodd-Frank Act specifically protects the choice of model, it doesn’t actually guarantee it and rules certainly could be written that would effectively end it.  That matters because not only are investors overwhelmingly making an informed choice of how they want to purchase investments and advice, but, as the SIFMA study indicates, they are doing so in a cost efficient manner.  If a fiduciary standard precluded individual retail investors from purchasing investments directly from their broker who underwrote the offering of a municipal bond or initial public offering of corporate stock, that investor would likely pay a higher cost.  
 
None of this is to say that investors don’t deserve the highest standard of care; their best interests should be absolutely be put first.  But individual investors should not have to sacrifice their ability to choose what’s right for their investment needs.   Investors can have…and deserve…both.
 
Over the last year, SIFMA, along with many others in the securities industry, have been vocal supporters of a new fiduciary standard. We recognized that after 70 years of patchwork law and implementation, it was time to come together and set a new federal fiduciary standard written by the SEC that uses all of the best current state interpretations to write smart, effective regulations that govern such a standard.  
 
This issue is too important to individual investors.  It is incumbent upon the SEC to consider investor behavior, choice of model, and cost as it develops this important new standard of care.  
 
 
John Taft is CEO of RBC Wealth Management-U.S. and Chairman of SIFMA (The Securities Industry and Financial Markets Association), a financial services industry trade association.