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Institute Rolls Out Fiduciary Guidelines Ahead of SEC

Institute Rolls Out Fiduciary Guidelines Ahead of SEC

Preempting a move by the Securities and Exchange Commission to propose and enforce a uniform fiduciary standard among financial advisors, the Institute for the Fiduciary Standard released a set of 11 best practices on Thursday for RIAs and brokers seeking to adhere to the standard.

“My feeling is that it’s likely the SEC will not do anything,” says Knut Rostad, president of the Institute. “It’s important to note that even if the SEC does proceed [with a uniform fiduciary duty], if this industry we call advice truly does want to develop into a profession, it’s going to be because the practitioners themselves make it happen and not because of any government regulators.”

The Institute's proposed best practices—which are open to public comment through March 9—outline behavior that both independent investment advisors and brokers should meet to serve the best interest of their clients and accurately call themselves true fiduciaries.

“The Institute’s best practices focus on addressing conflicts of interests, increasing transparency and communicating clearly,” Rostad says, adding that they were crafted to be concrete, understandable and verifiable.

Among some of the best practices outlined:

  • Advisors must provide a “reasonable basis” for advice in the best interest of the client
  • Communicate clearly with clients and make all disclosures in writing
  • Provide written fee statements
  • Abstain from principle trading unless a client initiates an order to purchase a security on an unsolicited basis
  • Avoid all conflicts and potential conflicts

Brian Hamburger, CEO of MarketCounsel, says the timing is right for such a measure. “You likely have inaction on behalf of the SEC, and one could argue, what’s worse, the re-proposed new definition [of a fiduciary] coming from the Department of Labor, likely imminently.”

“This is a classic private industry response to converge upon a solution,” he added. Once the public comment period ends, a five-member Best Practices Board headed by Rostad will review any input and adjust the proposed best practices accordingly.

Rostad says he hopes to complete this process by July, at which point the Board will work on crafting an independent method to verify advisors who say they adhere to the standards.

“We think can efficiently design a program to allow advisors to have that verified,” Hamburger says. Currently the Board has not yet decided on which organization or what type of third-party will act as an independent verification system.

In terms of making the best practices part of a certification offered by the Institute, Rostad told reporters Thursday that is certainly one of the options open to the Board and that the group is exploring all options. Rostad hopes that both brokers and investment advisors will review and sign onto the best practices, saying that while the Board was mindful of the challenges the fiducary standard posed to brokers' businesses, it refused to lower the bar with the best practices crafted.

“We are in uncharted waters today. The anti-fiduciary and distrustful investor climate is striking. More striking than at any time in recent history,” Rostad says. “Fiduciary advisors need to lead a resurgence of fiduciary principles, not by lobbying Washington, but by speaking clearly and plainly to investors in the public square.”

TAGS: Industry
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