Home » Fiduciary Overkill

by Rob Schulz, CFP®

April 20, 2011


The SEC is currently looking into authorizing a universal fiduciary-duty regulation under the Dodd-Frank financial reform law. If carried out this would subject large conglomerate financial services firms to the same standard of care that investment advisers must meet – that is, acting in the best interests of their clients.


Many consumer groups support the newly proposed regulation, along with the CFP Board of Standards and the Financial Planning Association.  As expected, the regulation is opposed by several Republican congressmen and the large financial services firms who would come under the new guidelines.


Unexpectedly, I am NOT in favor of a universal fiduciary standard.


The ongoing investigation into the Financial Crisis has clearly demonstrated how conflicting responsibilities in many cases panned out poorly for clients, but this was not due to the lack of regulatory standards. Firms (non-fiduciary) and their representatives have a duty to disclose and must determine suitability when marketing products to the investing public. The primary role of most large financial services firms is to package and market investment products (mutual funds, annuities, structured products, etc.) that are an important driving force in our economy.  The shareholders of these firms reasonably expect these activities to create shareholder value.


In a perfect world, the financial products created and sold by these firms would be profitable to their shareholders AND always in the best interest of their clients. However; this is an unreasonable expectation that will lead to countless lawsuits as large conglomerate financial services firms try to serve two masters. The current regulatory standards of disclosure and suitability do not directly conflict with the firms duties to its shareholders.


There is no question better regulation and enforcement is needed to protect consumers who purchase financial products, but a universal fiduciary standard is not the answer.  Clearly, there is a difference between an independent financial adviser providing advice for a fee and a large institution that directly (and rightfully so) profits from trades, program fees, and products sold.  To hold both to the same standard does not magically resolve the overriding conflicts of interest or level the playing field. They are different business models under separate regulations with their own important roles within the industry.


Under current guidelines it is very difficult for financial consumers to see and understand the difference between the two.  I would be in favor of measures that help consumers better differentiate between a fiduciary adviser and a company representative, even if that meant imposing more stringent requirements on independent advisers like myself who are dually licensed.  In the long run, it would be better for the industry and its consumers to take a more practical approach than the one currently being pursued.

Rob Schulz, CFP®
Rob Schulz, CFP® is a Principal with First Texas Financial Services, Corp., and a Registered Representative through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. He is also an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and FTFS are not affiliated. These are the views of Rob Schulz and not those of Cambridge, FTFS, or any of their affiliates.

By Rob Schulz