Acrimony at recent hearings on the Department of Labor’s proposals for retirement planning advice gave the public a ringside view of one of the hottest debates within the investment industry. Complaints about the complexity of new rules proposed for advisors, the hindered access clients might face and the costs they might pay were the themes of the day, but these debates overlooked the fundamental concern about whether investors were aware of their providers’ conflicts of interest, and more importantly, how they would react if they knew.

The debates show the industry’s struggle to provide a simple solution that protects the public and also shows it struggling to answer some tough existential questions.

None of this is new. The Investment Advisers Act came into effect in 1940 to outline the duties of registered investment advisors. Court decisions over time have imposed a “fiduciary” standard of care on investment advisors (in which they put their clients’ best interest first) when exercising discretionary investment control over clients’ assets.

But the public’s confusion has grown as financial services and its regulations have become more complex. Brokers who earn commissions on investment products have traditionally operated under a different standard—a “suitability” standard requiring the products to simply be suitable for clients.

The public’s lack of clarity about these dueling standards has forced the investment management industry to look itself in the mirror and question several long-held practices. It has also had to consider its own viability and usefulness in an environment defined by tighter margins and global competition.

The United States is not unique. Policymakers in Mexico, Canada, Australia and the United Kingdom have all had to address similar issues. The U.K.

Financial Conduct Authority (FCA), for example, banned commission-based services and required greater transparency in fee-based services to enhance professionalism and investor awareness. A December 2014 report requested by the authority said the number of advisors declined from about 40,000 when the rules were announced to a little more than 30,000 when the rules were implemented (in December 2012) as big High Street banks decided to leave the market. The ranks have stabilized at around 32,000 advisors.

Most worrisome is that fewer clients in the study expressed willingness to pay for advice after being told what it would cost. People avoiding advisors altogether, or only occasionally seeking expert advice, had grown to nearly two-thirds of retail investors, from around 54% at the announcement of the rules.

These investor decisions will obligate our industry to better illustrate what we do for current and prospective clients. Despite this identity crisis, we believe the industry’s innovative energy will produce new advisory models that will reshape it in a manner that serves the public well.

To get there, we do not need new and more complex regulations that try to define when, in what circumstances, for whom and for how long a fiduciary duty should apply. Instead, we need to stop blurring the lines about the roles and standards of care of different financial services providers. That would allow investment professionals to focus on putting their clients’ interests first and, consequently, building and delivering honest value.

To achieve this, we believe the Securities and Exchange Commission should reserve the term “advisor”—including all iterations of the term and any synonyms—specifically for those who are willing to honor the fiduciary standards of the Investment Advisers Act. These terms should apply similarly to all ERISA-type activities. Simply put, anyone claiming to offer personalized investment advice to clients must subscribe to a “client interests first” mentality.

At the same time, the CFA Institute does not support eliminating commission-based services. This type of compensation model is valuable in its own right if accompanied by much greater clarity about what clients should (and should not) expect in these types of relationships. Therefore, brokers not subject to the Advisers Act, who only meet a suitability standard, must clearly identify themselves as a “salesperson” without qualification. Such a system would help clients better understand the differences between brokers and investment advisors.

Ultimately, the technical debate over the DOL’s fiduciary proposal misses the larger, more important question—which is whether we truly want to be a profession. The answer to this question should be a resounding “yes.” As an industry, we should desire to regain the trust of Main Street and enjoy the public warranty that is carried by professions such as medicine and law.

We can continue down the path of complexity, self-interest, product focus and profit maximization and further undermine our reputation. Or we can cultivate a professional status by ascribing to full transparency, the highest standards of care and the sole purpose of facilitating investor outcomes.
The industry’s history is one of serving the public’s greater good; the next chapter must return us there.

John Bowman, CFA, is the managing director of the Americas at CFA Institute. He provides leadership and strategy to CFA Institute’s largest region, including Canada, the U.S., the Caribbean and Latin America.