The Institute for the Fiduciary Standard released a proposed set of best practices for advisors Thursday at TD Ameritrade Institutional’s annual meeting.
The 11 standards are intended to help consumers distinguish who is acting as a true fiduciary, said Knut Rostad, an industry compliance professional who co-founded the institute in 2011.
“Investors are confused, skeptical or downright distrustful,” Rostad said.
The non-profit group is asking for comments on the proposed standards by March 9. Rostad expects to have final standards set by this summer.
Once the best practices are in place, the institute plans to develop an independent verification process. A fiduciary credential could be an additional option, Rostad said.
But the first step would be the verification procedure.
“The consumer could then shop for an advisor who is independently verified,” said Brian Hamburger, chief executive of MarketCounsel and general counsel to the institute’s best-practices board.
How would verification work?
“We haven’t quite tackled that yet,” Hamburger said, “but it does need to be [done by a] third party.”
The proposed standards, which the institute has been working on for about a year, is in response to the SEC’s inability to develop its own fiduciary standard under the Dodd-Frank Act.
At this point, however, the SEC’s lack of action is not a problem for advisors, said TD Ameritrade Institutional president Tom Nally.
Advisors have come to realize that a uniform fiduciary standard, which would have to cover the brokerage industry, would be filled with loopholes and possibly lead to more confusion, Nally told Financial Advisor.
RIAs are concerned that the brokerage industry could get a standard under which a registered rep could claim to be a fiduciary, “‘but here’s a 50-page disclosure document explaining where I’m not,’” Nally said.
The proposed standards would require advisors to acknowledge a fiduciary duty; provide a reasonable basis for advice; communicate clearly, truthfully and with written disclosures; provide an annual written statement of total fees and other payments; avoid and manage conflicts; abstain from principal trading; avoid incentives that can’t be credited back to the client; ensure a baseline level of expertise; use an investment policy statement; ensure access to a range of investments; and ensure reasonable compensation by comparing fees to peer groups.