CFP Board CEO Kevin Keller told Financial Advisor magazine In an earlier interview he believes the organization is “brave” to have passed a standard that extended CFPs’ fiduciary duty from just financial planning to all advice they deliver to clients.
SEC spokeswoman Judith Burns said the agency declined to comment on the white paper.
“In recent years, critics of fees have argued that commissions are better than fees for clients, based on a campaign of dubious claims—not based on new data and evidence," the paper states. "Incentives designed to undermine objectivity have been recast as less costly ... including opaque product incentives, commission schedules and conflicted advice. Yet, the new standards plant their flag on the claim that fees and commissions are basically the same thing.”
The rules would have consumers believe that all advisors are alike when in fact registered representatives have a multitude of opaque, complex conflicts embedded in what they charge investors—ranging from payments for product shelf space and 12b-1 fees to revenue sharing arrangements, Rostad argued.
Consumers have a fighting chance to comprehend the limited, less complex and more transparent conflicts registered investment advisors engage in, he said.
In contrast, investors cannot readily comprehend far more complex and opaque broker-dealer conflicts, which some BDs such as Ameriprise admit in their own disclosures that their own reps may not understand, the paper stated.
The institute called on both the SEC and CFP Board to make a number of changes to their standards, including the following:
• Require broker-dealers to mitigate or manage material conflicts. “Disclosures and general principles alone are not enough. Concrete guidance is called for,” the paper stated.
• Rate advisor and rep conflicts on the basis of their magnitude, complexity and opaqueness, including their potential harms and risks to customers. “This may seem an unnecessarily basic procedure; however, it would contribute to the comprehension of customers, brokers and advisers alike,” the Institute said.
• Advance customer comprehension testing of conflict disclosures. “Greater transparency in fees and expenses has already helped increase 'customer comprehension' of the cost of investment advice and financial planning. Firms should commit to testing or affirming customer comprehension of materially conflicted recommendations,” the paper said.
• Provide consumers with a score card to rate brokers and advisers and identify key characteristics consumers should know and can ask about upfront.
This article, originally published yesterday, was updated to include the CFP Board's response.