A growing group of fiduciary advisor firms held a press conference yesterday with one goal in mind—inspire advisors to write letters to the Securities and Exchange Commission telling the regulator its proposed best-interest proposal will add to investors’ confusion and costs.

The “Raise Your Voice” campaign was born out of advisor concern over what they say is the SEC’s attempt to make brokers and advisors look identical, when in fact they are held to distinctly different legal standards, said Knut Rostad, who is spearheading the campaign as president of the Institute for the Fiduciary Standard. Rostad made the comments to advisors and reporters at the online press conference.

Launched in late June, the “Raise Your Voice” campaign is urging registered investment advisors to comment on the SEC’s best-interest proposals (at [email protected] Subject line: S7-08-18) and explain how advisors’ practices and processes differ from those of brokers. The deadline for comments is August 7.

“The proposed rules depict brokers and advisors as essentially the same, like identical twins, but without identical investor protections,” said Rostad. “The legal, contractual, business and cultural differences dividing brokers and advisors are important and must be clearly stated and explained.”

Rostad was joined at the presser by five of the leading fiduciary advisor networks and firms in the country, as well as representatives of the National Association of Personal Financial Advisors and MarketCounsel, a legal consultancy that helps brokers become fiduciary advisor firms.

The SEC’s best-interest proposals were designed by SEC staff to help investors discern the differences between brokers and advisors and avoid the cost of conflicted advice, which zaps some $17 billion annually from unsuspecting investors’ portfolios in the form of inferior investments and hidden commissions and fees. But the proposals—which make advisors and brokers look identical—fall short, advisors and industry veterans contend.

A 2006 SEC investor survey found that retail investors had a hard time distinguishing between advisors and brokers and believed both offered the same services and were obligated by the same standard of legal care. That isn’t accurate. Registered investment advisors are held to a legal fiduciary standard that requires them to put investor interests above their own. Brokers are held to a lesser “suitability” standard that allows them to sell products that may be the most profitable to the broker and his or her firm as long as they are “good enough” for investors.

Fast-forward 12 years and “investor confusion will remain because the SEC’s use of the term ‘best interest’ will be confused with a fiduciary standard,” said MarketCounsel President Brian Hamburger. “You can’t use the two words that make up advisors’ fiduciary standard and expect to solve the confusion. The standard gives investors a false sense of security that they are getting what is best for them when they’re getting only what is not harmful to them,” Hamburger said.

David Karp, a founding partner of PagnatoKarp, which advises on $3.5 billion for customers, told reporters that he left a large broker-dealer in 2011 to launch his fiduciary advisory firm because B-D platforms did not carry the best investments for his clients—although they may have paid the highest commissions and fees to brokers and the firm for inferior results.

Creating a clear distinction in regulation between broker transactions, which are profitable for the broker and broker-dealer, and advisory relationships, which by law must serve the best interests of investors, is critical, the veteran advisor said.

Hedging On The Word 'Fiduciary'

Broker-dealers use that confusion to their advantage, by using subtle word changes to suggest brokers are fiduciaries, Karp said.

“I sit in interviews all day long where clients tell me they actually believe their broker is a fiduciary because brokers say things like: ‘I’ll always put your interests first,’ ‘We do have fiduciary services’ and ‘I act as a fiduciary every day.’ But they never say they are fiduciaries because it’s not true. As a firm, we believe that these terms need to be clarified and the public educated,” Karp said.

“One wouldn’t think this level of wordsmithing would be permitted in a regulated industry,” he added.

An informal poll of the fiduciary advisors at the press conference found that they all used some form of the term “best interest” to describe their fiduciary duty and services to clients. If the SEC proposal is approved as is, brokers will be able to say they work in investors’ best interest.

“A single fiduciary standard for retail professionals would establish a standard that would always be in the client’s best interest,” said Chris Jones, CEO of the $190 billion advisory firm Financial Engines. “Weak standards just allow additional cover for unscrupulous brokers.”