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How Does a Uniform Fiduciary Standard Help the Confused Investor?
By Frances McMorris
January 27, 2011
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An avalanche of comments deluged news outlets over the recent release of the Securities and Exchange Commission’s “Study on Investment Advisers and Broker-Dealers.”
The study urges that a uniform fiduciary standard be adopted for both investment advisers who now adhere to it and broker-dealers who often rely on the so-called suitability standard. It was a result that was widely expected. The 208-page document spells out its recommendations and its reason for calling for a uniform standard can be summed up in one word: confusion.
“The recommendations,” the study said, “are designed to increase investor protection and decrease investor confusion in the most practicable, least burdensome way for investors, broker-dealers and investment advisers.”
Yes, confusion on the part of the retail investor. What standard of care applies when getting financial advice from an investment adviser as compared to a broker-dealer? Is there any real difference?
The study stated that retail investors and investor advocates sent in comments saying that: “Many find the standards of care confusing, and are uncertain about the meaning of the various titles and designations used by investment advisers and broker-dealers.”
The study went on to say: “Retail customers should not have to parse through legal distinctions to determine whether the advice they receive was provided in accordance with their expectations.”
Then again, neither should advisors on either side of this debate. In that regard, the study stated that in putting a uniform standard into practice, the SEC “should identify specific examples of potentially relevant and common material conflicts of interest in order to facilitate a smooth transition o the new standard. . .”
In addition, under a duty of loyalty, a uniform standard, the study said, “will obligate both investment advisers and broker-dealers to eliminate or disclose conflicts of interest.”
And the study suggested that the Commission set out rules and offer guidance as to what it means to provide “personalized investment advice about securities.”
After all, what advisors—whether they are investment advisers or fall under a broker-dealer’s umbrella—need is clear and distinct guidance. They need guidance from regulators that walk them through specific examples and aren’t merely vague intonations what the new fiduciary standard should be.
Let’s remember. This study is merely the first step in the path to a uniform fiduciary standard. There is a long, long way to
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Frances McMorris was named editor-in-chief of ON WALL STREET in February 2008, after serving as executive editor since December 2004. She also created and serves as the host of AdvisorTV, an online video interview show appearing at onwallstreet.com.
From indictments to verdicts and appeals, Ms. McMorris has covered many major, high-profile cases in both federal and state courts as a legal affairs reporter for The Wall Street Journal, The New York Daily News, Newsday and The New York Law Journal. The cases that she has covered include: the seditious conspiracy trial of Sheik Oman Abdel Rahman, the blind Egyptian cleric convicted of being the spiritual mastermind of the 1993 World Trade Center; the constitutional battle over the “Don’t Ask, Don’t Tell” military policy; the Crown Heights riot murder trial; federal racketeering cases against violent gangs; the Long Island pet cemetery trial and several securities fraud and insider trading cases, among others.
The legal issues she has written about are diverse and numerous, ranging from economic espionage to employment discrimination rulings and the first story to report that there is no expectation of privacy for employee emails written in the workplace.
Ms. McMorris is a 1993 graduate of Fordham University School of Law and admitted to the New York and New Jersey bars. She has appeared on the former CNNfn to give expert commentary on trials.
She also served as president of the Newswomen’s Club of New York for three years while working as an assistant managing editor at The Daily Deal in New York.
ON WALL STREET magazine has a circulation of more than 90,000—reaching financial advisors and brokers at the most prestigious brokerage firms who serve high-net-worth and ultra-high-net-worth investors.
FEED
Frances McMorris was named editor-in-chief of ON WALL STREET in February 2008, after serving as executive editor since December 2004. She also created and serves as the host of AdvisorTV, an online video interview show appearing at onwallstreet.com. 
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