New SEC staff guidance makes it nearly impossible for registered investment advisors to call themselves fiduciaries in customer relationship summaries [CRS], according to compliance specialists at an Institute for the Fiduciary Standard press conference yesterday.
RIAs owe clients an engagement-based fiduciary duty to put client needs and interests above their own at all times. So you might expect that advisor firms would be able to say that in the CRS summaries—the centerpiece of the SEC’s retail advice rule Regulation Best Interest—that were pitched by the agency as an education tool for investors to use to compare the different costs, conflicts and legal duties between advisors, dually registered advisors and brokers.
But the new guidance put out by SEC staff on March 31 makes it “it implausible and nearly impossible” for advisors to describe themselves as fiduciaries, said institute President Knut Rostad.
Speakers cited the following section of the SEC guidance:
“[I]n the staff’s view, embellishing factual statements about the capacity or services of an investment professional or firm with phrases such as ‘an investment adviser who is held to the fiduciary standard’ is likely to be inappropriate. Similarly, the staff cautions against describing the fiduciary duty as a 'higher standard' or the 'highest standard.' In addition, it is likely misleading and non-responsive for an investment adviser to represent that the fiduciary duty alone mitigates or eliminates conflicts of interest.”
SEC staff said that firms may use the word fiduciary or fiduciary duty “only to the extent permitted by the Form CRS Instructions and the applicable item.”
But that doesn’t give RIA’s any comfort, compliance experts said, since most were already told by their compliance professionals not to use the word "fiduciary" because they believed it would be a red flag.
Only six of 30 RIA firms with assets between $1 billion and $3 billion used the word "fiduciary" in their 2021 summaries and only two of the six described what it meant, according to a survey by the institute.
“We heard [investment advisors] say explicitly they were advised by their compliance consultants to not mention fiduciary status,” Rostad said.
One large RIA told the institute that on an “SEC outreach call” a junior SEC staff person told RIAs that citing fiduciary status is not allowed, he added.