by Skip Schweiss
The confusion and uncertainty facing investors these days is daunting enough without getting lost in the definition of terms. With reform legislation likely on the way, the distinction between broker-dealers and RIAs-and the standards to which they are held-needs to be quite clear to the investor and not blurred in the semantics of a sales pitch.
During the recession, the very foundation of our economy was shaken to its core. The S&P 500 lost $8 trillion of market value from the October 2007 peak to the March 2009 low, and the unemployment rate soared. The financial services sector has undergone monumental changes as many familiar company names have been absorbed, merged or simply no longer exist. Most distressingly, exposed investment fraud has rocked the trust of the American people.
The sum of these events has resulted in Americans losing confidence in our financial markets and the companies that serve them. The silver lining is that out of crisis comes opportunity, and now is the time to start rebuilding investor confidence. To start with, we need to help investors answer the question, "Who is my financial professional and what am I actually getting from him or her?"
Clear definition is necessary so investors can make informed decisions. But in today's financial world, many consumers and even some financial professionals are still confused about what constitutes financial advice and who can legitimately provide it. In recent years, various surveys have shown that many investors are confused about the roles their financial professionals play.
For example, a report by the RAND Institute in 2008 found:
- 63 percent of investors who responded thought registered representatives are required to act in the best interests of the client (they aren't)
- 70 percent believed that registered representatives must disclose any conflicts of interest (generally they don't)
Moving Forward
We should always be aware of any pending legislation or regulation facing our businesses, but now is the time to correct the anomalies that have evolved into the investment environment. We are well on our way to recovering from the recent crisis that has provided us this great opportunity to reshape our industry as we rebuild and strengthen investor confidence.
Whether you are an investment adviser or a registered representative at a broker-dealer, the regulatory changes that are currently being discussed will affect the way you conduct business in the future. Our world is changing, and it is happening now. It is incumbent on all of us in this profession to:
- Stay informed about the issues and the proposed solutions
- Make our voices heard at the legislative level as well as with the various industry associations and trade groups
- Make sure our employers or service providers, such as custodians or broker-dealers, understand any concerns and are acting to help protect the interests of financial professionals and investors
In response to these challenges, TD AMERITRADE Institutional has written a white paper examining this topic from several perspectives. The paper serves to educate industry participants, regulators, government officials and the investing public on the great importance of this issue to the future of our profession, as well as the importance to investors. "The Standard of Care for Investment Advice: Drawing a Clear Line of Distinction Between Fiduciary and Suitability" paper highlights the need to:
- Provide a clearer definition of the types of services offered by the various types of financial professionals so investors can make informed decisions
- Clearly differentiate among non-advisory broker-dealer services such as clearing, the sale of products to retail clients by broker-dealers and the provision of ongoing and personalized investment advice
- Deliver an appropriate standard of care for investors dependent on the type of professional relationship and services they request
Have your voice heard by connecting with the various industry trade groups, such as FPA's Washington D.C.-based government relationships department (www.FPAnet.org/GovernmentRelations).
Skip Schweiss is the president of TD AMERITRADE Trust Company (TDATC). He is the managing director of corporate services and is also responsible for TDATC's retirement solutions and services for independent RIAs and third-party administrators using the trust platform.
TD AMERITRADE, division of TD AMERITRADE Inc., member FINRA/SIPC, and RAND Institute are separate, unaffiliated companies and are not responsible for each other's products, services and policies.
Tools to Use
Download the TD AMERITRADE Institutional white paper, "The Standard of Care for Investment Advice: Drawing a Clear Line of Distinction Between Fiduciary and Suitability" at www.maximizemyriabusiness.com/fiduciarywhitepaper.
