The organization representing fee-only advisors has launched a public initiative to clear up consumer confusion about fiduciaries that it says has been worsened by the SEC's proposed best-interest rule.
The National Association of Personal Financial Advisors (NAPFA) initiative includes infographics, GIFs and a pointed questionnaire investors can use to elicit critical information about their broker or advisor in the wake of the pending SEC “Reg Best Interest” proposal, which NAPFA alleges uses fiduciary-like terminology without applying a fiduciary standard to the bulk of the advisor industry.
“The term ‘best-interest’ is not shorthand for fiduciary and it is misleading to investors,” NAPFA President Geoffrey Brown told Financial Advisor magazine.
Brown said the regulation creates a “false equivalency” in investors’ minds between registered investment advisors, who do have a fiduciary standard, and hybrid or dually-registered advisors and brokers, who will instead be held to an undefined “best-interest" standard under the proposal.
“An investor could go seek advice from a broker and believe they’re working with a fiduciary when they’re not,” Brown said. “We thought it was very important to arm investors with a clear definition of what a fiduciary is, tips on choosing an advisor, a sample set of questions and diagnostics to help them do due diligence.”
In one of example of the message being conveyed, NAPFA states the following on its campaign website: “Non-fiduciary financial professionals can recommend products whose sales generate bonuses, commissions or prizes for them, but can cost you significantly more in higher fees. It’s estimated that non-fiduciary advice costs investors up to $17 billion a year,” NAPFA states on the campaign's website.
SEC Chairman Jay Clayton said he hopes to finalize the agency's best-interest proposal in the summer.
Brown said NAPFA will decide how its 3,600 members want to respond to the SEC’s final rule when they see it.
Clayton has argued there really is no difference between the fiduciary standard and the best-interest standard. “The core duty is the same,” he said. “There are people who try to say there is daylight between the two. But not the way we think about it.”
Critics argue the SEC could just apply advisors’ existing fiduciary standard to dually registered brokers. But Clayton maintains two standards are needed to reflect the differences in the RIA and broker business models.