New Regulations Won’t Help

June 8, 2019  |  

New Regulations Won’t Help

Lost amid last week’s hectic news cycle was a very important development for investors and their financial advisers.  The Securities and Exchange Commission (SEC) recently approved “Regulation Best Interest” by a 3-1 vote.  SEC Chairman Jay Clayton said the regulation enhances the broker-dealer standard of conduct.  SEC Commissioner Robert Jackson dissented, stating that his hope was that the rules the SEC announced Wednesday would leave “no doubt that investors come first.   Sadly, I cannot say that.  Today’s rules maintain a muddled standard. Today’s rules simply do not require that investors’ interests come first.”  To many, it sounds like just a matter of legal semantics so why should you care?

As many of you know, a “fiduciary” must always act in his or her client’s best interest. In the spirit of full disclosure, Independence Advisors, LLC is a fee-only adviser and we are proud to be a fiduciary. By contrast, a salesperson at a financial institution can “sell” you a product that is in the salesperson’s (or brokerage firm’s) best interest–not yours. What’s more, that product may or may not be appropriate for your long-term financial goals and your risk tolerance.

I bring this up because under these new rules, almost anyone in the financial services industry can claim that they are acting in a client’s best interest, even though they may not be subject to the higher standards of a fiduciary.  Sadly, it will become more difficult for investors to select an adviser. In last weekend’s Wall Street Journal, Jason Zweig referenced a nationwide survey that asked consumers, “Who is held to a fiduciary standard by law”.  More than half of the respondents (51%) incorrectly thought that brokers were held to the fiduciary standard, and only two in five respondents (41%) accurately identified investment advisers as professionals that are held to the fiduciary standard.  If you’re a Journal subscriber, you can read Zweig’s insightful piece here.

In addition to the changing SEC regulations, the Certified Financial Planner board is also refining its code of conduct for its CFP® certificate holders.  Some brokerage firms have already started to negotiate the new code of conduct before it becomes effective in October.  One reason that brokers are resisting the new code is that they are concerned about assuming an expanded “fiduciary obligation” and how they will monitor an adviser’s responsibility to meet the standards1.  In other words, brokerage firms won’t follow tighter standards because they won’t be able to verify if their advisers are truly acting in the client’s best interest. 

Does anyone remember the definition of character? I was always taught that it was about the way you behave when no one is looking. If we need a law to ensure that an adviser is acting in a client’s best interest, I think we have a far greater problem than a law can fix.  Rest assured, Independence Advisors remains a fiduciary working for your best interests and this regulation won’t change that.

If you or someone close to you has questions about why a fiduciary is the best choice, please don’t hesitate to contact us.


About Mark Rioboli, CFP®, CFS

Mark A. Rioboli, CFP®, CFS is Director of Wealth Management for Independence Advisors, bringing over 30 years of experience in the wealth management industry. Have a question for Mark? CLICK HERE TO ASK MARK
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