New Group Calls For 'Authentic Fiduciary Standard'
A group of advisors intends to add another voice to the campaign to adopt a fiduciary standard for all advisors. Calling themselves the Committee for the Fiduciary Standard, the group says it will wage a media campaign to urge Congress to uphold an "authentic fiduciary standard" as it explores reforms of the way financial advisors are regulated.


"Few investors understand the stark differences between the brokers' suitability standard and the investment advisors' fiduciary standard," says Knut A. Rostad, a member of the group's founding committee and the compliance officer at Rembert Pendleton Jackson, a registered investment advisor.

The debate involving fiduciary standard versus suitability standard is a hot potato issue that inflames passions on both sides. Of late, proponents of the former have seemingly gone on the offensive to state their case as Congress contemplates the regulatory future of the financial services industry.

RIAs registered with the Securities and Exchange Commission are governed by the fiduciary standard that requires advisors to act in their clients' best interests. Broker-dealers registered with the Financial Industry Regulatory Authority are held to the suitability standard that requires them to make recommendations that fit a client's risk tolerance, objectives and financial status.

President Obama's massive plan to overhaul the rules governing U.S. finance includes a proposal to apply the fiduciary standard of client care to broker-dealers offering investment advice.

Other groups have already been stumping for the fiduciary standard, including the  Investment Adviser Association and the self-proclaimed Financial Planning Coalition comprising the Certified Financial Planner Board of Standards Inc., the Financial Planning Association and the National Association of Personal Financial Advisors.

"I'm certainly aware that some people are wondering why get another group involved in this issue," Rostad says. "But it's been an uphill battle for a long time and I've never seen where trying to direct more resources in an uphill challenge is a negative thing. As long as we can provide a contribution, that would be helpful."

The committee says its goal is to promote reform that includes a requirement that advisors follow five core principles. Those include putting the client's interests first; acting with prudence, defined as acting with "skill, care, diligence and good judgment"; not misleading clients but instead providing "conspicuous, full and fair disclosure of all important facts"; avoiding conflicts of interest; and fully disclosing unavoidable conflicts.

In addition to Rostad, the committee members are Blaine Aikin of Fiduciary360 LLP; Clark Blackman of Alpha Wealth Strategies LLC; Harold Evensky of Evensky & Katz; Sheryl Garrett of the Garrett Planning Network; Rober C. Gibson of Gibson Capital LLC; Matthew D. Hutcheson of Independent Pension Fiduciary; Gregory W. Kasten of Unified Trust Company; Kate McBride of Wealth Manager Web site; Fred Reish of Reish, Luftman, Reicher & Cohen; and Ronald W. Rogé of R.W. Rogé & Company.

In a survey released in June by TD Ameritrade Institutional, roughly two-thirds of RIAs said they want to see the fiduciary standard applied to registered reps at broker-dealers. But they had divergent views on which fiduciary model they would support. The largest group (36%) called for current RIA fiduciary standards to be applied to brokers, while 29% favored adopting the Securities Industry and Financial Markets Association's proposed Principles of Fair Dealing that emphasizes fair treatment of investors by applying the same core standards of care whether the firm is a financial planner, an investment advisor, a securities broker-dealer or another financial services provider. 

Meanwhile, 25% said they want to maintain the current fiduciary standard for RIAs and the suitability standard for brokers, and 10% were undecided.

Wide Racial And Ethnic Disparity In 401(k) Savings
There are sizable disparities in 401(k) saving and investing behaviors among racial and ethnic groups, regardless of an individual's age or income, according to a recent study of nearly 3 million employees at 57 large, mainly Fortune 500 companies.

The study conducted by human resources consultant firm Hewitt Associates and Ariel Education Initiative, a nonprofit affiliate of Ariel Investments, found that African-Americans and Hispanics have lower participation rates and contribute less to their 401(k) plans than whites and Asian-Americans. In turn, that decreases the odds of having a comfortable retirement.

Among the study's findings, African-Americans and Hispanics are less likely to participate in their 401(k) plans (66% and 65%, respectively) compared with 77% for whites and 76% for Asian-Americans. Contribution rates among African-Americans (6.0%) and Hispanics (6.3%) were also lower than those of whites (7.9%) and Asian-Americans (9.4%).

That means lower average account balances across the wage income spectrum. Among employees making more than $120,000, the average account balance was $150,456 for Hispanics and $154,902 for African-Americans. That compares with $161,259 for Asian-Americans and $223,408 for whites.

"Savings rates overall are low for all groups," says Barbara Hogg, principal at Hewitt and co-leader of the Ariel/Hewitt study. "But we're seeing tendencies for one group to have more of certain barriers or different priorities than another group that prevents them from doing more than they could with 401(k) plans." 

For example, Hogg explains, some groups might put greater emphasis on their college savings than retirement savings, might be supporting extended families, or view their long-term horizons as little as 10 years rather than 30 or 40 years. "Not everyone finds appealing the message of 'Do this for you so at some point you'll have the independence to go off and do whatever you want to do,'" she says.

"I think one of the things we're looking to do is re-evaluate the messages we put around 401(k) plans," she says. "Are you making the messages inclusive for a broad population and recognizing that people might be motivated by different things? Weaving in different motivations and recognizing what drives individuals to action is really important."

The study makes several recommendations for employers and policymakers, including modifying loan requirements to decrease the chance of default, mandating financial education at all levels of public and private schools, and designing 401(k) plans with features such as automatic enrollment with high default contribution rates and periodic contribution hikes.

Advisor Salaries Rise
Despite the lingering effects of the one-and-a-half-year-old recession, the average financial advisor salary is up 10% this year, according to a survey released in early July by the College for Financial Planning and Cerulli Associates.
The 13th annual Survey of Trends in Financial Planning found that average salaries jumped to $215,345, up from $195,394 in 2008. Still, that's a comedown from the average salaries of $283,079 in 2007 and $232,995 in 2006.

Among other findings, there's a continued shift toward fees and away from commissions with more than half of the respondents saying they get the majority of their compensation from fees. One-fourth (26%) are fee-only, and another one-third (30%) receive at least half their revenue from fees.

In addition, clients are demanding more comprehensive plans customized to their overall financial goals. According to the survey, 36% of advisors' clients are receiving comprehensive written plans, and another 46% receive modular plans, both written and unwritten.

"As people watch their retirement savings or child's college fund shrink, they are increasingly asking advisors for solutions to help live their lives, rather than simply grow their stock investments," says Cerulli analyst Bing Waldert. "That requires a more comprehensive approach with a greater emphasis on customer service and better training."

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