"Many financial advisors are getting compensation for picking certain funds, which creates potential conflicts of interest. They may get load fees and as a result could be vulnerable to lawsuits for that," said Ruder, who was also a speaker at the legacy forum on fiduciary stewardship.
Financial advisor Phil Cioppa leans on his broker-dealer's managed platform to reduce the risk of liability.
"We're still liable, but the greater liability lies on the company putting together the portfolio. There's less responsibility on the financial advisor since the broker-dealer made the choice," said Cioppa, who is managing principal and chief investment officer of Arbol Financial Strategies in Norwalk, Conn. "The fiduciary duty of a mutual fund is becoming more relevant as new Finra regulations overwhelm us. The message is, be serious, cautious and ethical. "
The Dodd-Frank Wall Street Reform and Consumer Protection Act makes no specific reference to advisor oversight duties for Finra, but at least two of its provisions suggest that regulators could head in that direction.
Financial advisor Monty Agarwal doesn't invest in mutual funds at all. "Mutual funds have a long way to go to fulfill their fiduciary duty to investors. In order to observe fiduciary duty, the fee structure of mutual funds has to change. If fees were incentive-based, the mutual fund's interest would be aligned with the interest of its investors," said Agarwal, who has $200 million under management in Palm Beach Garden, Fla.
Advisors' clients are increasingly playing a role in the attention paid to the fiduciary duty of mutual fund companies.
"Over the last 30 to 40 years, as investors have become responsible for their retirement funds, fiduciary duty has become more important because conflicts of interest are associated with greater costs, which are associated with reduced returns," said Rostad. "Financial advisors get the highest quality of investments for their clients by avoiding conflicts of interest at all costs. And conflict of interest is what fiduciary duty is supposed to eliminate."