Put Up or Shut Up!

The Securities and Exchange Commission (SEC) continues to delay action on a proposed universal fiduciary standard that would require anyone providing investment advice to always put a customer’s best interests first. While investment advisers are currently required to put a customer’s interests first, stockbrokers and other financial advisers are allowed to put their own financial interests first.

This disparity obviously makes no sense. Yet, the SEC continues to say that it is studying the issue. This issue could be resolved simply if the SEC would simply let the public decide. The SEC would probably rejects such an idea, saying the potential costs involved must be considered.

My response – What additional costs? Most broker-dealers already have their own in-house investment adviser division, which supposedly would be reviewing traded according to the fiduciary standard applicable to investment advisers. FINRA, the primary regulator for the financial services industry, has clearly stated that brokers and broker-dealers are required to always put a customer’s best interests first. Adopting a universal fiduciary standard would simply be in accordance with FINRA’s position.

The SEC recently reported that they received a poor response from the financial services industry from their request for information regarding the additional costs that would result from a universal fiduciary standard. The SEC should not be surprised. As mentioned above, there is no legitimate evidence to support such a claim.

The financial services industry also claims that a universal fiduciary standard would result in people being unable to receive adequate investment advice. Legally speaking, evidence which is based on pure speculation is admissible. The financial services industry has no substantive evidence to support their claim because they cannot do so.

As a former compliance officer who worked with brokers, I find it hard to believe that a good, honest broker is going to refuse to provide advice to anyone and walk away from potential compensation, whether a fee or commission. Why would they? If they are providing advice that is in the best interests of the customer, they are entitled to make a living. As for those who might refuse to provide advice unless they can put their own financial interests first, I say good riddance.

Its time for the SEC and the Department of Labor to tell the financial services industry to “put up or shut up.” Enough of the empty, unsubstantiated rhetoric. Its time for the various agencies whose expressed missions are to protect the public to actually do so or come clean and tell the public the real reason they refuse to do so. As former Supreme Court Justice Louis Brandeis once said, “sunlight is the best disinfectant.”

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