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Against a fiduciary standard?

By Sheyna Steiner ·
Friday, June 24, 2011
Posted: 9 am ET

On Thursday, the SEC received a petition signed by thousands of financial planners, members of the Financial Planners Coalition, urging them to apply a uniform fiduciary standard to anyone providing personal investment advice.

You may perhaps recall that the SEC was empowered by the Dodd-Frank Act to study the issue last year. They found that a uniform standard was needed, told Congress that in January and are now scheduled to implement rules later this summer or in the fall.

As it turns out two important groups aren't particularly interested in uniform standards of care. Most notably, investors themselves.

According to a story on from June 19, "Report: Clients confused about standards and don't care," a J.D. Power and Associates Survey found that 85 percent of full-service investors don't understand the difference between the fiduciary standard and the suitability standard. Not only that, as the title of the story suggests, they really don't seem to care.

From the story:

Among full-service investors whose financial advisers adhere to the fiduciary standard, 57% said that this increased their comfort level. Then again, 42% said that it decreased their level of comfort.

Forget investor protections, apparently all investors want is a little attention from their financial representative.

Clients have clearly indicated that they want more frequent and clearer communication that explains their investments' performance and how fees are charged.

This seems ridiculously backwards to me, a higher standard of care would necessitate more disclosure of fees. How do people end up with money to invest if they can't be bothered to find out just a little bit about the people to whom they're entrusting it?

A second bit of somewhat disheartening news on the fiduciary standard front again came from in the form of the June 23 story, "Insurers out to kill fiduciary standard, planners say."

The Financial Planners Coalition, the aforementioned petition signers, claims that the insurance industry is not interested in a single standard of care.

The insurance industry is represented, in part, by the National Association of Insurance and Financial Advisors.

From the story:

Of the organization's 50,000 members, about two-thirds have securities licenses and all have insurance licenses. Some are investment advisers. A fiduciary duty would directly affect the sale of variable annuity products.

The last sentence is a little bit amusing, isn't it? There are products sold everyday which advisers would not be able to sell were they putting their client's best interests ahead of their own.

For some reason, I find it incredibly depressing that investors seem to be so blasé about this issue.

What do you think, do you care what standard your adviser adheres to?

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