Presentations Are Misleading
I’m not necessarily opposed to someone changing roles, and I do favor preserving choice, but the choices must be accurately presented. When the client doesn’t know the standard has dropped when the role changes, what is often referred to as “hat switching” because it becomes a classic bait-and-switch maneuver, the SEC should put a stop to it.
The CRS could be a way to address improper standards switching, but instead of making things clear, the SEC just makes things worse for the public. The sample documents use the word “fiduciary” to describe the advisory standard but don’t describe what the word means.
Yet, alarmingly, they use language descriptive of fiduciaries to describe their newly rebranded suitability standard—the one that is supposed to apply because advice is incidental.
There is also this odd bit of language that suggests it will be cheaper to buy things through a brokerage account, as if the difference between an advisory account and a brokerage account were simply the form of payment. That’s more BS.
As stated in the law, B-Ds effect transactions and get paid when a “buy” or “sell” recommendation is executed. A brokerage relationship provides no value to the B-D firm for a “hold” or “avoid” recommendation.
Real advisors are those who can figure out whether transactions are needed at all, and they get paid only when clients pay a fee for that service. In fact, when an advisor implements a recommended transaction, the advisor employs a B-D to execute. That B-D has no fiduciary obligation to the advisor or to the advisor’s client, nor should it. The advisor is the one looking out for the client through its fiduciary duties, including its best execution responsibilities.
What Should The SEC Do?
This is where I imagine what good CRS documents could look like. These examples I provide could use more plain English, but I opted to use language from the law and the SEC’s own words for the bulk of this.
Dan’s CRS For Advisory Relationships: