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.”