Standards Fare

The idea of expanding the fiduciary standard is gaining momentum.

A draft proposal being considered by a Securities and Exchange Commission (SEC) advisory group calls for the agency to raise investment advice standards for brokers, based on the law that currently governs investment advisers.

Is there a legitimate reason not to do so? The prevailing argument against a single standard is that Broker-Dealers and their reps would be exposed to increased legal liability, driving up rates for errors and omissions insurance and the cost of doing business. The conventional wisdom is that there would be an exodus of registered reps from the field—leaving an even greater share of an already underserved middle class without a financial service professional to help them.

So what is the message for independent insurance agents that are registered reps or have registered reps in their agencies working under a Broker-Dealer? It means the outcome of the necessary standard of care may impact the business model and form of compensation the rep receives. It could also mean registered reps may have to broaden the product knowledge and resources that would afford them more universal product information. Some registered reps may exit the retirement plan market and/or the IRA rollover marketplace—not because they don’t provide helpful advice, but because cost or time burden compliance may not be worth the hassle. Investment advisors should be held to a standard that fits the market segment they are serving. But if the net result is fewer advisors serving the public—particularly middle-class savers—is this ultimately the best outcome?

Dave Evans is a certified financial planner and an IA contributor.

SIDEBAR: Impact on Registered Reps

Since most registered investment advisors work under a fee-for-service model, their typical account minimums are $250,000 and up. Someone who has saved $25,000 to invest toward their retirement might pay $1,500 in front-end commissions, but also come away with a solid financial approach: saving in a diversified portfolio of mutual funds with a dollar-cost averaging approach, plus a game plan as to how much they need to save in order to have a reasonable standard of living in retirement. To this end, the SEC has been conducting a cost-benefit analysis to determine the potential impact on registered reps and ultimately, consumers.—D.E.