It’s admittedly hard to argue against the concept of holding financial advisors to a fiduciary duty, especially when it’s so often been boiled down by proponents as a seemingly simple matter of doing what’s in the best interests of one’s clients.
However, as we’ve stated repeatedly, imposing a legal universal fiduciary duty on advisors is not so simple. There will be unintended consequences that could profoundly change the way financial products and services are delivered and limit the choices and access to services of middle market investors.
A cover story in the current issue of Financial Advisor magazine does an excellent job of explaining many of the risks and uncertainties that a universal fiduciary duty would bring, including:
- “Best interests” is hard to define — is it lowest price? Best return? Something else?
- A universal fiduciary will likely lead to higher costs as advisors’ regulatory and liability burdens increase.
- The suitability standard works very well — and provides regulatory protections — for middle-market investors with typical needs and smaller accounts.
- RIAs currently under a fiduciary duty have high fees and account minimums that are prohibitive to middle-market investors. Expanding a fiduciary duty to all advisors could leave these people without access to products and advice.
If you’ve been reading the NAIFA Blog, many of these points should sound familiar. It’s good to see them finally gaining some traction in the media.