Skip navigation

Bankers v. Broker/Dealers: Bankers Must Flaunt Fiduciary Status

Bankers need to flaunt their status as fiduciaries to battle expected competition from broker/dealers,

Bankers need to flaunt their status as fiduciaries with an eye to expected competition from broker/dealers, Eugene Maloney, executive vice president and corporate counsel for Federated Investors, declared at the general session of the American Bankers Association’s annual Wealth Management and Trust Conference in Miami Beach Tuesday morning.

Maloney described the Securities and Exchange Commission’s study concluding that broker/dealers should be subject to the same fiduciary standard as registered investment advisors as “simply mindless” and “a joke.” Broker/dealers can “lay claim to the title [of fiduciary], but not the status,” he said.

Today, 75 percent of America's financial advisors are dually licensed--able to act as both a registered rep, selling stocks and bonds and other commissioned products, and as a fee-only advisor under a b/d's corporate RIA or the FA's own independent RIA, according to Cerulli data. The strategy is popular and growing. But the licenses themselves don't confer fiduciary status. Today, an advisor is only held to the fiduciary standard if he offers fee-based advice or holds himself out as a comprehensive financial planner or if he is registered with the SEC as an independent RIA.

Maloney acknowledged bankers who are wealth managers and trustees were about to face increased competition precisely at a time when the trust business is undergoing a massive “inter-generational transfer of wealth.” Consequently, bankers have to be able to articulate why “no one else can lay claim to fiduciary status” and why they are unique and different, Maloney said.

The key differentiator for bankers is the fact that they are legally obligated to abide by the Uniform Prudent Investor Act, as applied in their respective states, Maloney argued. “The key question you have to answer is why would anyone want to give you money?” Maloney told the wealth managers and trust officers. The answer, he said, was their unique status as fiduciaries under the UPIA.

Wealth managers need to be able to explain the UPIA to both clients and colleagues, Maloney stressed. The law takes a “principle-based approach” to investing, and stresses a process-driven approach to money management, Maloney said. “Everything has to be written down,” he emphasized.
“The UPIA is not an outcome-based statute,” Maloney said. While the law does not require that portfolios meet benchmarks or make distinctions between a clients making or losing money, bankers do have an on-going duty to monitor the investments, Maloney said.

Managing trust assets with a long-term time horizon is critical, Maloney said, especially in light of the recent financial crisis. Trustees need to resist the temptation to make “emotional” adjustments to portfolios in times of short-term volatility and remember their “prudent duty” to the trusts’ long-term goals, he said.

And while the UPIA does allow trust officers to delegate investment decisions to third parties, bankers must do due diligence on money managers they select, Maloney stated. “The decision can’t be based on reputation alone, and you can’t rely on SEC oversight,” he said.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.