American financial planning guru Michael Kitces has called for a review of how fiduciary standards operate in America in the wake of the presidential election.
As Money Marketing reported last week, with a victory for Joe Biden now confirmed, tougher action could well be taken on professional obligations for advisers stateside.
Trump had rolled back on Obama-era plans to introduce a fiduciary legal standard across the planning profession in America where, currently qualified investment advisers are subject to such rules, but the greyer-area of broker-dealers are not.
Kitces, the co-founder of the XY Planning Network, which fought against the watering down of standards, tells Money Marketing: “The concern here is that the broker-dealers – which historically sold stocks and then mutual fund products – have converged into the advice channel.
“As technology has increasingly commoditized access to financial services products through the internet, so brokers increasingly provide advice, leading to debates about whether brokerage firms should be subjected to the same fiduciary standard as the investment advisers, or allowed to remain separate (and if so, whether they would have to relinquish the ‘financial adviser’ titles they’re using while acting as salespeople).
Watch our interview with life planning guru George Kinder on life after the US election
“The Democratic Party platform under Biden has already stated that they intend to take up the issue of fiduciary regulation of brokers giving advice, though it remains to be seen whether or how they will approach this in practice.
“As the co-founder of an organization that sued our regulator last year to try to prevent them from implementing a lower non-fiduciary standard for brokers giving advice, we would certainly like to see some change here, either to subject broker advice to a fiduciary standard, or simply to bar brokers from giving advice unless they cross the line to become investment advisers and subject themselves to the fiduciary standard that already applies there.”
However, the Society of Financial Services Professionals’ secretary Ernie Guerriero argues that while he would back a fiduciary standard, it is the adviser who should take responsibility for themselves rather than regulation.
“As a professional, I am in favour of the fiduciary rules but what I am not in favour of is the tight regulation that I think is going to be imposed on advisers,” he said. “The rules give us guidelines but it’s really not black or white; there is a lot left to interpretation.”
Guerriero said that the government should not be overly-regulating advisers as it would take away a lot of the profession’s freedoms. Instead, advisers should subscribe to some type of self-regulatory regulation such as those from societies like the FSP.
He added: “The regulations give us guidelines but no matter how much regulation -whether it’s the Department of Labour, the Treasury or the IRS – no matter what is imposed on us as advisers, you will always find people who are going to try and find a loophole and be unscrupulous to try and benefit themselves.
“We had regulations in place when Bernie Madoff was caught with his Ponzi scheme. The difference between a Bernie Madoff and other advisers is if they subscribe to that code of professional responsibility.”
Discussing whether it is likely a Biden win will bring a stronger fiduciary rule back in to play, Guerriero argued that he doesn’t think it will. “The Biden administration has a lot more on their plate than the Department of Labour rule.
“I think what’s going on with the racial divide, Covid, and the pandemic that we are still in the midst of, there is so much going on nationally that the Department of Labour rule really only impacts a small subset of that entire bundle and all the things he has to be concerned with.”
