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The Decline of the Fiduciary Brand?

Extending a fiduciary rule to brokers could actually weaken the fiduciary standard for advisors.

Mercer Bullard, 03/09/2011

Have a comment, insight, or burning opinion on this article? Make your feelings known in the comments section at the end of the article.

Some years ago, an industry lobbyist at a luncheon preceded a presentation by an NASD (now FINRA) official by asking: "What is the difference between an investment advisor and a broker? Answer: A broker doesn't call you in the middle of dinner."

Advisors continue to make a point of staking out the differences between themselves and brokers, often on the ground that advisors are fiduciaries and brokers are not. However, if the SEC follows a staff recommendation to impose a fiduciary duty on brokers, advisors may lose an important weapon in their marketing arsenal.

The Fiduciary Brand
The fiduciary duty is not just a legal standard; it is also a valuable brand. The Investment Adviser Association, Financial Planning Association, CFP Board of Standards, and National Association of Personal Financial Advisors frequently go out of their way to distinguish investment advisors from brokers on the basis that advisors have a fiduciary duty to their clients and brokers do not. The IAA's Cutting Through the Confusion brochure, for example, specifically highlights the fiduciary status of advisor and non-fiduciary status of brokers.

Many of their members/certificants use the fiduciary standard as a marketing tool. The home page of the firm that I am associated with prominently announces "its strong fiduciary commitment to its clients" and includes a link to a page on Fiduciary Excellence, which leads to a document entitled Fiduciary Standards - The Foundation for Trust. Fiduciary Solutions' NAPFA profile page claims that "'fiduciary' encompasses the heart of the company's business philosophy." Connemara's home page boasts that it is "A Trusted Fiduciary" in 20-pt font.

The fiduciary branding strategy is often explicitly used to distinguish advisors from brokers. Mainstreet Financial Planning heads its home page with: "welcome to a firm that provides advice, not sales." "If you're looking for a financial advisor who will put your needs ahead of commissions," then visit Clarity Financial Planning's home page. Financial Strategies' home page begins by describing the difference between brokers and advisors as follows: the broker "owes his loyalty to the firm, not the client." This pitch echoes NAPFA's position that brokers "are required by federal law to act in the best interest of their employer, not in the best interest of their clients."

NAPFA takes the fiduciary brand to new levels. Its members must sign a Fiduciary Oath. Its Focus on Fiduciary page has links to: Definition of Fiduciary, Fiduciary Difference, Fiduciary Information, Fiduciary Questionnaire, Fiduciary Voice Podcast (with more than 40 individual episodes of the "Focus on the Fiduciary Show"), and three fiduciary-related videos. In case the message has not gotten through, one video bears the unsubtle title "Brokers vs. Advisers" and features an image of a fistful of dollars over the words: "People who look out for their commissions." That's not just marketing; that's bare knuckles marketing.

Fi360 has turned the fiduciary duty into a business model. The firm offers an Accredited Investment Fiduciary (AIF) certification to those who pass an examination on fiduciary practices, satisfy continuing education requirements and annually attest to a code of ethics. For aspiring high priests of the fiduciary church, there is the AIF Analyst (AIFA) designation, which authorizes holders to perform a CEFEX Fiduciary Certification.

Mercer Bullard is president and founder of Fund Democracy, a mutual fund shareholder advocacy organization, an associate professor of law at the University of Mississippi School of Law, a senior adviser for financial planning firm Plancorp Inc., and a former assistant chief counsel at the Securities and Exchange Commission. He has testified frequently before Congress on regulatory issues. He can be reached at bullardm@funddemocracy.com.
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