Six investment advisor groups launched a campaign asking advisors to tell the Securities and Exchange Commission its proposed customer relationship summaries will confuse investors rather than illuminating critical legal and regulatory differences between advisors and brokers.
Billed as a time-urgent “Raise Your Voice” campaign, the initiative asks advisors to respond to the SEC’s August 7 deadline on the proposed customer relationship summaries, by outlining their fiduciary practices and principles in. Advisors are required, as fiduciaries, to put their clients interests first. In contrast, brokers, who often charge fees for advisory accounts the same as advisors, are currently held to a fiduciary standard when they oversee advisory accounts.
“The proposed rules depict broker and advisers as essentially the same, like identical twins, but without identical investor protections,” said Knut Rostad, president of the Institute for the Fiduciary Standard, who is spearheading the campaign. “The legal, contractual, business and cultural differences dividing brokers and advisers are important and must be clearly stated and explained.”
The SEC summaries (there will be one for brokers, advisors and dually-registered brokers) are supposed to outline for investors the differences between financial professionals, including conflicts of interest, business practices and hidden fees and commissions. Unfortunately, they fall short of this mark because they make advisors and brokers sound identical, the advisor groups said. Conflicted advice costs investors some $70 billion annually, according to the General Accounting Office.
Critics of the proposal say calling the proposal a “best interest” regulation, which the SEC fails to define in the proposal, will sound more attractive to customers without requiring brokers to put investors’ best interests first at all times.
“We submit that it’s contradictory. Everyone sounds like everyone else, but brokers are getting an exception and we play by a fiduciary rule,” said Patti Houlihan, chairman of the Committee for the Fiduciary Standard.
“The worst that can happen is the SEC makes brokers look like they are fiduciaries with a best interest standard that isn’t even defined,” said Houlihan. “The way the SEC proposal reads now, it says to consumers: ‘The legal people [fiduciaries] are over here and they cost more and are more complex, but here’s the down-to-earth best-interest folks [brokers] who have your back.’ I’m very worried about how this is going to turn out,” said Houlihan, who began her career as a broker three decades ago before launching her fee-only advisory firm Houlihan Financial Resource Group outside Washington, DC.
The fiduciary advisors’ campaign includes a ready-to-use flyer and a social media post that urges “Advisors Act Now: Tell the SEC You’re Different."
The flyer, which depicts three people on a park bench, reads: “Brokers are paid commissions to make sales to distribute issuers’ securities to investors. Their advice is “incidental.” Brokers are in a relationship of three. You’re different. By law, you’re a fiduciary. You must be loyal and always put clients first. You have no hidden partners. You’re in a relationship of two. Advisers: act today! The SEC is writing new rules about what advisers and brokers do. Speak out. Urge the SEC to explain that advisers are in relationships of two and brokers are in relationships of three.”
The initiative also provides bullet points advisors can use in describing their fiduciary practices.