While all registered investment advisors (RIAs) are required by law to act as fiduciaries to clients—putting client interests above their own at all times—most are not using the word “fiduciary” to describe their ongoing relationship and service offerings in their mandated customer relationship summaries (CRS). Why? because their compliance consultants have warned them the Securities and Exchange Commission is frowning on the word’s use.

The summaries are the centerpiece of the Securities and Exchange Commission’s retail advice rule—Regulation Best Interest—which was purportedly designed to educate investors about the different services, costs and conflicts that exist among different investment professionals.

But RIAs and their compliance executives worry that the SEC is muddying the waters more for consumers, by making all financial professionals look exactly the same, when in fact their services, costs, conflicts and loyalty differ vastly.

The concern is that the SEC “is trying to level the playing field, not for true fiduciaries, but for those who are conflicted, such as securities and product sales people,” Peter Mafteiu, Principal of Sound Compliance Corp. said. 

“For the SEC to say that Reg BI is a universal best interest standard is just inaccurate. Dually-registered advisors are only fiduciaries at the time they make a recommendation,” added Mafteiu, who is helping RIA firms use the word fiduciary in their Form CRS.

The SEC did not respond immediately to a request for comment. But the agency’s original directions on CRS don’t mention the word fiduciary and new staff guidance from the regulator (https://www.sec.gov/news/statement/staff-statement-form-crs-disclosures-121721) on Dec. 17, specifically faulted RIAs for using the term fiduciary in certain sections of Form CRS, adding to the confusion, advisors said.

“For example, many firms included the proposed conversation starters and/or proposed standard of conduct language (i.e., ‘We are held to a fiduciary standard that covers our entire investment advisory relationship with you.) rather than the required language as adopted (i.e., ‘we have to act in your best interest and not put our interest ahead of yours’),” the SEC warned regarding one section of the summary.

The results of a study of 30 RIA firms found that only six firms with assets between $1 billion and $3 billion mentioned the word "fiduciary" in their CRS and only two of the six described what it meant, according to the Institute for the Fiduciary Standard, a trade group for fiduciary RIAs.

“I think certainly, there is a lot of confusion out there and we’ve been hearing this from the beginning,” Gail Bernstein, general counsel of the Investment Adviser Association (IAA) said. “We continue to believe and early conversations with the SEC confirmed and I think still hold that it is not inconsistent to use the word fiduciary in Form CRS.”

The IAA is having “internal meetings” about whether or not to ask the SEC to clarify the instructions for Form CRS further. There is also a meeting of the IAA’s CRW working group which is made of up of member RIA firm executives, where the subject of CRS confusion and what to do about it will come up, she said.

“We think that the SEC doesn’t want Form CRS to be a marketing piece, but wants firms to stick closely to its proscribed best interest language, but it is our view that saying you’re a fiduciary is a factual statement,” added Bernstein, who encouraged RIAs to have discussions with clients about what being a fiduciary means and to find a way to use the term in the form’s “conversation starter” section.

Some RIAs themselves are taking the bull by the horns and demanding their compliance consultants add the word fiduciary to the next iteration of their Form CRS:

Daniel Wiener, Chairman of $7 billion Adviser Investments is one of them. “Originally we did not use the word fiduciary in Form CRS because compliance people told us adding the word would be going against what the SEC requires,” Wiener said. “We’re having a compliance call with our whole team and when we file our new CRS we will add the word. Without it, there’s not a person who gets our CRS who will know we are fiduciaries,

“I told compliance, ‘let’s be explicit about who we are and what we do,” Wiener added.

Institute for the Fiduciary Standard President and Co-Founder Knut Rostad said he has met with SEC officials four times in the past two months to press the point. “I want the SEC to clarify to investment advisors that it is permissible to cite and describe fiduciary duty in form CRS,” Rostad said.

Rostad called it shocking that “the term fiduciary, the single biggest differentiator between types of firms, has been eliminated from forms that are supposed to highlight material facts. Instead, we see form CRS highlight similarities and product fee schedules.”

Rostad said he believes the disclosure could become useful if firms disclose material information and show investors the differences between their standards and their core businesses.