The SEC added a special section in the guidance on this topic but it’s still not clear whether the guidance refers to limiting the scope of services, such as monitoring, or whether the scope of the federal fiduciary duty itself can be partially waived, Thompson said.
One real concern is the extent to which disclosure serves as the primary remedy for managing conflicts, in the SEC’s rules. In other words, can a fiduciary merely disclose away all his conflicts? “The debate is over the appropriate steps involved in handling conflicts; i.e., is the advisor required first to look at ways to avoid the conflict, or can s/he merely disclose it, ensure that the client is able to make an informed decision, and then proceed with providing conflicted advice?
“If the conflict is substantial, and even though the client understands and accepts the conflicted advice, does the advisor’s fiduciary duty to act in the client’s best interest require him or her to recommend an alternative product or investment strategy?” Thompson asked. Consumer advocates greatly fear disclosure will be overused and won’t be effective, he added.