Adviser Regs Need To Preserve Independence
I recently joined 120 other CEOs, compliance officers and advisors to represent the Financial Services Institute (FSI), in Washington, D.C., for the 2009 Advocacy Summit.
The purpose of the summit was to meet and discuss certain regulatory changes that will impact independent advisors and independent broker-dealers. The way I and my colleagues see it, the new regulations will adversely affect the independent financial advisor and independent broker-dealer business model. The current model allows independent advisors to own their own business and provide affordable investment options to small and middle-class investors—those who choose to work with independent broker-dealers.
End Of Independence
My colleagues and I have built our businesses from the ground up with an undying impetus to provide our clients with the highest quality service, full transparency and diligent compliance practices. We see further regulation as an additional strain on our business practices which can adversely affect how we service our clients. For more than 30 years, the independent broker-dealer industry has provided the investing public with comprehensive and affordable financial solutions. Our industry is already one of the most heavily regulated industry groups and further expense only adds more cost to the consumer. The bill will sever the reciprocal relationship and force independent advisors to become employees of their broker-dealer firms, not only taking independence away from advisors, but consequently taking away affordable investment services from small and middle-class investors.
A universal standard of care should be designed to ensure transparent business relationships, effective client disclosure and efficient low-cost investment solutions. The word “fiduciary” is already a standard that I use as a certified financial planner and pension consultant. The purpose of setting standards is to provide a certain level of care placing the client first, avoiding material conflicts of interest and providing the client with appropriate advice based on their risk tolerance and investment objectives. The impact of this proposed legislation would create certain hardships, which in turn, create a negative impact on financial advisors and their clients.
I think the industry as a whole will continue to move towards the independent model, as large banks and wire houses are mired in complexities, costs, compliance issues and the like. Using “fiduciary” for all advisors, considering the variety of different legal definitions, would simply put the burden on the client (meaning cost and the ability of the average investor to afford professional help would be prohibitive). If all advisors were tossed into being classified fiduciaries then all would seek only larger, more affluent clients, and that is not healthy to the vast majority of those who need financial help. That is why we support a universal standard of care that is broad enough to cover all advisors and not ratchet up costs.
In the end I think the industry and Congress will support this effort and create a self regulatory body to supervise and effectively protect the investor/client.
William B. Smith is the president of WB Smith Cos., a wealth management company based in Grafton. He can be reached at wsmith@wbsmithcompanies.com.
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