Financial advisors will lose if broker-dealers are also given a fiduciary duty because it will take away one of their chief competitive advantages, prominent investment industry attorney Robert Plaze told a meeting of the Institute for the Fiduciary Standard yesterday.
With the current setup, Plaze said advisors can tell potential clients they are legally obligated to serve their best interests while broker-dealers are not.
But the former Securities and Exchange Commission Investment Management Division deputy director warned that a fiduciary duty for broker-dealers could be weaker than the one placed on advisors because brokers are much more politically connected.
“Brokers are the market,” Plaze said.
Shareholder activist Robert Monks praised Employee Benefits Security Administration chief Phyllis Borzi as the only thing protecting pensioners from having their fiduciary protections diluted.
At the gathering in Washington, D.C., CFA Institute President John Rogers called for a new age of “fiduciary capitalism,” where those who control pension, endowment and sovereign wealth funds use their power as owners of 50 percent of the world’s private company equity to direct the future of business financial performance.
He noted that since World War II, dominance of businesses has shifted from corporate managers to Wall Street funders to these institutional investors.
With their wide holdings, a commitment to long-term performance and responsibility for the financial well-being of hundreds of millions of people, institutional investors are in a place to raise the importance of social investing, Rogers said.
While environmental safeguards may not be in the interest of an investor in a single, large polluter, protecting the climate makes sense for large fund managers because one business’s pollution could harm the performance of many other companies, he noted.