A group of well-known leaders in the investment world are urging Congress, the SEC and the DoL to "extend and heighten" protection for investors receiving advice, as part of an awareness push called “Fiduciary September.”

A group of well-known leaders in the investment world are urging Congress, the Securities and Exchange Commission and the Department of Labor to "extend and heighten" protection for investors receiving advice, as part of an awareness push called “Fiduciary September.”

The group includes high-profile names such as Paul Volcker, former chairman of the Federal Reserve, John Bogle, of Vanguard fame, and Nobel laureate in economics Daniel Kahneman.

They will unveil on September 11 a “Fiduciary Declaration” signed by 12 finance and economics luminaries to encourage Congress, the SEC and the Department of Labor to adopt a single fiduciary standard across investment professions. Mary Schapiro, chairman of the SEC, will unveil and discuss it.

The SEC is considering applying a uniform fiduciary standard, such as the one investment advisors adhere to, to the broker-dealer industry, while the Department of Labor is considering a “re-proposal” of the definition of a fiduciary for retirement accounts regulated by its Employee Benefits Security Administration.

The twelve signatories of the Fiduciary Declaration are: Sheila Bair, Alan Blinder, John Bogle, Peter Fitzgerald, Tamar Frankel, Andrew Golden, Roger Ibbotson, Arthur Levitt, Daniel Kahneman, Burton Malkiel, David Swensen and Paul Volcker.

The aim of Fiduciary September and the Declaration is to “raise the stature of the whole discussion,” explained Kathleen McBride, founder of consultancy FiduciaryPath, and also one of the founders of The Committee for the Fiduciary Standard and The Institute for the Fiduciary Standard.

“Here are people who are leaders in America, who have said with one voice, this is the right thing to do for investors,” she said.

Debate over the standard

Dodd-Frank gave the SEC the power to establish a uniform fiduciary standard for advisors and broker-dealers providing personalized investment advice to retail customers. Following the signing of the Act, an SEC staff study in January 2011 recommended such a standard.

However, disagreements over its form have delayed the process. For example, the Securities Industry and Financial Markets Association, a securities industry group, explicitly supports a uniform fiduciary standard but says it “strongly opposes imposing on broker-dealers the existing Advisers Act,” according to a letter to the SEC. As such, SIFMA’s views on what the standard should look like “sharply depart from established SEC views” on areas such as conflicts of interest, The Institute for the Fiduciary Standard wrote in a letter earlier this year.

“Here we are, just passed the two year anniversary of the Dodd-Frank Act,” says McBride, “and the SEC has already conducted a study” – as mandated by the Act – recommending that the standard be implemented. Furthermore, it’s roughly four years on from the 2008 “debacle in the financial markets,” she adds, “and investors are still where they were.”

“[Consumers] believe the advice they’re getting is fiduciary,” she says, when that is not necessarily the case. This agrees with the SEC’s study, which found investors were confused by the standards of care that apply to RIAs and broker-dealers.

Currently, B-D relationships can be fiduciary in nature, but they need not be: a lot rests on what the client demands from the relationship. But herein lies the problem, as the information asymmetry between providers and consumers of financial products and services means the relationship is more likely to end up tilted in favor of the provider.

“Investors of all stripes”

McBride highlights that this issue is critical not just for wealthy investors but for “investors of all stripes,” and especially for people saving for retirement.

“It’s not that it guarantees a certain outcome,” she says, but “if you have someone managing your costs…who must act in your best interests,” it’s a better starting point.

"Trust – confidence in the honesty, reliability and fairness of people and their firms – is essential to democracy, a free market economy, and the financial system,” said William Isaac, senior managing director of FTI Consulting and former chairman of the Federal Deposit Insurance Corporation. “The breach of trust in recent years by our government and major financial institutions has been enormously damaging. The fiduciary standard is an important step toward restoring confidence in our institutions and markets."