fiduciary or not? a "Bait and Switch" game

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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Thu Sep 12, 2013 8:32 am

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From: Knut A. Rostad []
Sent: Tuesday, September 10, 2013 5:48 PM
To: Knut A. Rostad
Subject: Institute Releases Fiduciary Duties Paper; Cites SEC Case in Explaining What Fiduciary Duties Mean for Investors


The Institute for the Fiduciary Standard continues its celebration of Fiduciary September with the release of a paper, “Six Core Fiduciary Duties for Financial Advisors,” today. It is attached.

The paper seeks to explain what these six duties mean to investors and uses an SEC case to do so. The case In the Matter of Arlene Hughes offers a valuable lesson. Arlene Hughes, a dually registered broker – advisor, sells her own securities to her clients, who by all accounts, trust her emphatically. In her clients’ eyes, Hughes is portrayed a true fiduciary. Unfortunately, however, the SEC found in its fact finding that Hughes’ clients failed to understand that Hughes chose to put herself in a conflicted position, and clients also failed to understand what that conflicted position meant to them.

The SEC’s handling of this case is important. Its clear and concise explanations of many issues central in the today’s discussion of potential rulemaking stand out. Conflicts of interest, the nature and meaning of disclosure in different circumstances, and the responsibilities of both the advisor and the client are addressed. The meaning of loyalty is articulated in meaningful terms. The relationship between loyalty and conflicts is discussed. You will find this case of interest.

Thank you for your interest in this issue. Please contact me with any questions or comments.


Knut A. Rostad
Institute for the Fiduciary Standard
703-821-6616 x 429
301-509-6468 cell


study mentioned above is found here: ... Duties.pdf
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Mon Jun 10, 2013 8:08 pm

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Fiduciary advocates warn SEC not to water down uniform standard
InvestmentNews roundtable panel debates rules for advisers vs. brokers

By Mark Schoeff Jr.
Jun 10, 2013 @ 3:35 pm (Updated 4:46 pm) EST
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Fiduciary standard debated at InvestmentNews roundtable.
Advocates for strengthening investment-advice rules for brokers are warning the Securities and Exchange Commission not to dilute the standard that currently applies to investment advisers — acting in the best interests of clients.

As the July 5 deadline approaches for comments on a SEC cost-benefit analysis of a potential uniform fiduciary standard, investment-adviser groups are concerned about assumptions included in the request for information.

The parameters are designed to give respondents an idea of how a uniform fiduciary duty might work. But they are making fiduciary proponents nervous.


“Don't water down this [fiduciary] duty that has been very well-established and do not create different standards of care for different kinds of clients,” David Tittsworth, executive director of the Investment Adviser Association, said Monday during the InvestmentNews Regulatory Roundtable in Washington.

Mr. Tittsworth's organization was one of nine that signed a June 4 letter to SEC Chairman Mary Jo White asserting that if the parameters in the cost-benefit analysis request were used to draft a uniform fiduciary rule, it would significantly weaken the fiduciary standard for investment advisers. Advisers must act in the best interest of a client, while brokers meet a less strict suitability standard when selling financial products.

“This approach is one that would have negative consequences for advisers and is one we would vigorously oppose,” the letter states.

The parameters include those that follow provisions in the Dodd-Frank financial reform law, such as allowing brokers to continue charging commissions and selling from a menu of proprietary products and not subjecting them to a continuing duty of care or loyalty to a retail client.

Another guideline in the SEC release is that the application of the fiduciary standard of care could be determined in a contractual arrangement between an adviser and client, which closely follows the fiduciary framework submitted to the SEC by the Securities Industry and Financial Markets Association in July 2011.

“A key concept is missing from these assumptions, and that is 'the best interest of the client,'” Marilyn Mohrman-Gillis, managing director of public policy and communications at the Certified Financial Planner Board of Standards Inc., said during the roundtable. “[The] assumptions seem to lead to a disclosure-only fiduciary standard.”

Throughout the information request, the SEC reiterates that the assumptions do not automatically influence any rule that is drafted.

Ira Hammerman, SIFMA's managing director and general counsel, said that his organization supports a best-interests investment advice standard. In addition, he noted that the Dodd-Frank law stipulates that a uniform standard must be no less stringent than the one advisers currently meet.

“Everyone should have the comfort that Dodd-Frank itself, the actual law, prevents any watering down,” Mr. Hammerman said at the roundtable discussion. “No one is looking for fiduciary-light or any sort of minimal fiduciary standard. What we are looking for is clear guidance” on how a uniform standard would work across advice business models.

Many industry participants argue that a uniform fiduciary standard must not limit access to advice for investors with modest assets, who may not be able to afford fee-only advisers.

“Our bottom line is, we're looking to avoid those unintended consequences of not giving advice to the small investors,” said Dale Brown, president and CEO of the Financial Services Institute.

The Dodd-Frank law authorizes the SEC to release a uniform fiduciary-duty standard, but the agency has moved slowly on the rule.

A big challenges is writing a rule that can apply equally to advisers and brokers.

“It's the context that makes the difference,” A. Heath Abshure, Arkansas' securities commissioner and president of the North American Securities Administrators Association Inc., said during the InvestmentNews event.

Mark Schoeff Jr. Email @twitter LinkedIn Google
Mark Schoeff Jr. covers legislation and regulations affecting investment advisers and brokers and wants to hear from you about how Washington policymakers are influencing your business. ... _term=text
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Thu May 30, 2013 6:57 pm

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Fiduciary duty costly…to those who do not wish to provide and take responsibility for structured advice…
Posted on May 29, 2013
The current suitability regime is a flag of convenience, a get out of jail card and it should no longer be relied upon by regulators to protect investor interests. FULL STOP/PERIOD.

I would like to comment on a recent Investment Executive article titled “Fiduciary duty costly for dealers, advisors suitability standard costly to investors”. The article drew on comments made by David Di Paolo, a partner of Borden Ladner Gervais and references the recent CSA consultation regarding the proposal to introduce a best interests standard.

“Imposing a fiduciary duty against financial advisors would have significant legal implications for advisors, and would substantially increase costs for dealers, ultimately forcing many small dealers out of the market, according to David Di Paolo, partner at Borden Ladner Gervais….”

First of all, the current transaction driven industry is incompatible with a fiduciary duty, and the liability structure of a transaction driven model within a fiduciary regulatory structure would, I agree, be insane. But this is no argument against its introduction!

These firms, or dealers, as they currently stand would not be able to function as is within a fiduciary model. Instead of relying on product distribution and other transaction initiation for their revenue, they would need to rely on revenue from advice, and would need to change their processes and systems to one capable of delivering well structured wealth management solutions.

No longer would the salespersons be deciding what and where to invest, how to assess risk, how risk profiles and investment objectives related to recommendations and structure, but these would all be centralised and formalised, considerably reducing the costs and the risks of delivering a fiduciary standard solution. The advisors would be the client relationship managers, delivering well structured investment solutions.

“The most significant impact for advisors, Di Paolo said, would be a diminished ability to defend themselves against liability in cases where clients have suffered investment losses.. one common defense available to advisors dealing with client losses under the existing regulations is suitability – proving that the investment they recommended was suitable for the client after having gathered the appropriate know your client (KYC) information. Under a fiduciary standard, this would no longer constitute a sufficient defense, Di Paolo. Suitability will no longer be the standard,” Di Paolo said. “Therefore, even a suitable recommendation – one consistent with the KYC – could result in liability.”"

If you are reliant on transacting, you would want to limit the constraints on the time it takes to transact and the costs of the transaction. The current suitability standard is limited for this very reason, and the information required to generate a suitable trade is different from the information and standards needed to provide a recommendation that fits into a well structured, planned and appropriately managed framework. The current suitability framework is a crude and quick parameter to parameter framework reliant on the investor taking responsibility for the transaction decision. It does not however match the representation of service being made and the expectation of service being assumed. This has been known for a while and it was the central focus of the OSC’s earlier FDM model.

But it is not just the limitations of a parameter to parameter framework, that make it difficult to ensure that recommendations are made in the client’s best interests and reflect their risk aversion/risk capacity, existing assets and financial needs (which is too complex a process for a back of the envelop suitability structure to deal with), that invalidate the process. The fact that the whole structure and operation is decentralised means there is considerable room for discretion amongst advisors as to how to interpret the framework and considerable room for abuse. This could not happen to anywhere near the same degree in a centralised, process driven structure with fiduciary responsibility for those processes – red flags would be waving immediately you stepped outside of its boundaries and the returns would not be influenced by the transaction, but by the service..

Hence, the true liability of a transaction regime, in terms of its failure to deal properly with the real environs of suitability, would be borne by the firms who benefit from those transactions. The current suitability regime is a flag of convenience, a get out of jail card and it should no longer be relied upon by regulators to protect investor interests. FULL STOP/PERIOD.

Another common defense is contributory negligence – the concept that the client bears some responsibility for his or her own decisions to invest. Under a fiduciary standard, however, that responsibility would essentially be transferred to the advisor. “The notion of client responsibility is turned completely on its head,” Di Paolo said. “The client bears absolutely no responsibility for his or her poor choices, even though the client is the ultimate decision maker.”

The problem with contributory negligence is that the risks and omissions of the process are not known to the investor. If they were they would likely not seek advice under the transaction framework. Again, I would like to reference the simplifying assumptions that need to be made in order for the investor to be realistically capable of taking responsibility for the investment recommendation under the current transaction system – please see Appendix A in my submission to the OSC on this matter.

With regard to the client bears no responsibility under a fiduciary framework, I would have to disagree. If the processes and structure and communication that underpin the advisory portfolio construction, planning and management process have integrity, the investor can take responsibility, while dependent on the integrity of the processes, for the generics of the decision, but they would have much more information on the risks of the approach and the rationale. In other words, the investor would have less leeway to place the liability on the advisor within a formalised best interests standard investment process. The problem with using the current limited standards is that there is limited definition, structure, communication, organisation and integrity. Relying on limited standard parameter to parameter suitability processes is just asking for trouble if you are intending to use that process to deliver advice.

Borden Ladner Gervais seeks only to defend a business model that could not survive with the higher standards that would be needed to deliver the promise of service that many make and without which the industry, likewise, could not survive. The industry wants to have their cake and eat it, which is possible only if the misrepresentation of the client/advisor relationship is allowed to continue as it is. This is the shocking and disturbing aspect of this article. Simple transaction based services are incompatible with best interest standards.
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Thu May 30, 2013 12:57 pm

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Browse: Home / Conflicts of Interest / Exclusive Interview with CFA’s Barbara Roper: Why a Fiduciary Standard Helps All Investors and 401k Plan Sponsors
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Exclusive Interview with CFA’s Barbara Roper: Why a Fiduciary Standard Helps All Investors and 401k Plan Sponsors

By Christopher Carosa, CTFA | May 21, 2013

What is the most obvious reason we should have a fiduciary standard? Why is the biggest fear not that regulators don’t act, but that they do? How come annuity sales organizations are among the most vocal opponents of the fiduciary standard? Why is investor education not the barrier many believe it to be? What more consumer-friendly term should replace the term “fiduciary duty”? What’s the one thing all 401k plan sponsors should ask their adviser? Why will fiduciary advisers will never be able to convincingly market themselves? How could the SEC have prevented this entire fiduciary mess in the first place?

These are just a few of the amazing answers Consumer Federation of America’s director of investor protection Barbara Roper offered our readers when she agreed to sit down with for an exclusive interview. And, boy, did she wow us! A leading consumer spokesperson on investor protection issues, Roper currently serves as a member of the Securities and Exchange Commission’s Investor Advisory Committee as well as the Public Company Accounting Oversight Board’s Standing Advisory Group and its Investor Advisory Group. She has received distinguished service awards from the National Association of Personal Financial Advisers and the North American Securities Administrators Association and the Consumer Excellence Award from Consumer Action. In 2012 she was recognized as a “Money Hero” by Money Magazine.

FN: Barbara, it’s an honoring speaking to you. Tell us a little about the CFA, when its started, what’s its basic mission and one or two of its highlight achievements.

Roper: CFA was formed in 1968 to provide a voice in Washington for the consumer movement. As our name suggests, we are a federation of national, state and local consumer organizations. We work on a broad range of consumer issues, including food and product safety, energy efficiency, telecommunications policy, and privacy. But we have always had strong concentration in financial issues, including banking, insurance, and high cost credit, along with the investor protection issues I work on. Just in the last several years, CFA was heavily involved in successful efforts to get the automobile fuel economy standards raised, to pass the Consumer Product Safety Improvement Act, and the Food and Drug Administration Reform Act. And, of course, CFA was heavily involved in the legislation fight for Wall Street reform following the financial crisis, including creation of the Consumer Financial Protection Bureau.

FN: How long has the CFA been involved in safeguarding investors and what is an example (outside of the fiduciary realm) of an issue it’s worked on?
Roper: I guess you could say I launched CFA’s investor protection efforts when I joined CFA in 1986. I had been hired to edit the organization’s publications. Almost by chance, I was asked to write a study on financial planning abuses, which received a tremendous amount of press coverage when we released it in 1987. The consumer movement had really neglected investor protection issues before that time, so by default I become the consumer movement’s investor protection “expert.” At the time, NASAA and congressmen Dingell and Markey were really leading the charge on those issues, and I got swept along. Over the years, I’ve tended to focus on what I think of as retail investor protection issues – issues like mutual fund disclosure and regulation of the financial professionals investors rely on for advice and recommendations. But because of our markets’ recent tendency toward crises, I’ve spent an inordinate amount of time on more structural issues, such as the auditing reforms adopted in the wake of the Enron scandal and issues related to asset backed securities, credit rating agencies, and derivatives in the wake of the most recent financial crisis.

FN: When and how did the issue of the fiduciary standard appear on the CFA’s radar?

Roper: I like to say I’ve been working on the fiduciary standard issue, in one form or another, since I joined CFA in 1986. People tend forget that, at the time, many financial planners were as resistant to the notion that they should have a fiduciary duty when implementing their plans as brokers are today. So my original study on financial planning abuses included a call for financial planners to be subject to a fiduciary duty throughout the planning process, including when they were selling products to implement their recommendations. Our efforts to ensure that brokers are subject to a fiduciary duty when they give advice grew out of that, particularly as brokers began increasingly to use titles that implied they were advisers and to market their services as if they were primarily advisory in nature. We concluded that either they were misrepresenting the services they offer or they had long since ceased to qualify for the “solely incidental to” exception from the Investment Advisers Act under any reasonable interpretation of that phrase. Clearly, they were marketing themselves in ways that were designed to create the sort of relationship of trust that creates, or ought to create, a fiduciary obligation.

FN: Why do you think the fiduciary standard is so important?

Roper: The longer I work on this issue, the more convinced I become that ensuring that all advice is subject to a robust fiduciary standard is the most important thing we can do to improve protections for average investors. We all know that investors can’t distinguish between brokers and investment advisers, particularly since brokers have been allowed to re-brand themselves as financial advisers. They don’t understand the difference between a fiduciary duty and a suitability standard. They certainly don’t understand that their investment adviser has to act in their best interest, but their financial adviser doesn’t. And why should they understand it? It doesn’t make sense. The upshot of all of this is that the typical investor simply can’t make an informed choice between the different types of financial professionals. Beyond that, we know that the typical investor is also ill-equipped to evaluate investments, does very little independent research of the investments recommended to them, and relies heavily, if not exclusively, on the recommendations they receive. That makes investors extraordinarily vulnerable and is precisely the sort of relationship of trust that demands fiduciary protection.

FN: What do you suggest be done to make ordinary investors more aware of the importance of using a fiduciary?

Roper: I am actually quite skeptical that this is a problem that lends itself to an investor education solution. If we are going to have a chance to change investor behavior, we are going to have to stop talking about a fiduciary duty and start talking about the best interests of the customer, even if that only partially captures the extent of fiduciary protections. In addition, I think it is long past time we had a pre-engagement disclosure document that all financial professionals are required to provide that covers these basic questions: Who are you? What services do you provide? What will I pay? How do you charge for your services? What are your conflicts of interest? And are there any significant blemishes in your disciplinary history? Even then, however, I think the real answer is to ensure that anyone who is acting as an adviser – or holding themselves out in a way that creates a reasonable expectation that they will be acting as an adviser – has to be held to a fiduciary standard. That’s the right policy for a number of reasons, not least because it doesn’t limit its protections to the most knowledgeable investors who are able to make an informed choice.

FN: What regulators have you (or the CFA) been in contact with and what have you taken away from those discussions?

Roper: I’ve talked to pretty much anyone and everyone who will listen. Since about 2000, my first communication to each incoming SEC chairman has been a letter on the need to raise the standard of conduct for brokers giving investment advice. Most recently, I used the opportunity of my “get to know you” meeting with new SEC Chair Mary Jo White to emphasize the importance of this issue for retail investors and, admittedly in very general terms, to raise concerns we have about what we see as some pretty gaping holes in the fiduciary standard that appears to be contemplated by the SEC’s recently released request for information.

Chair White didn’t strike me as someone who shows her cards before she is ready, but she certainly seemed to recognize the importance of the issue. I’ve also met several times with Phyllis Borzi and her staff at DOL, who despite the resistance they are receiving, appear to be hard at work finalizing their proposed fiduciary definition, prohibited transaction exemptions, and economic analysis. A lot of the opposition to the DOL proposal is based on speculation about what form it is likely to take, so we’re anxious to see actual language so that we can move from a debate about fears to a discussion based on facts.

FN: There’s a lot of horror stories when it comes to the financial industry. What is your biggest fear should Washington continue to allow non-fiduciaries to offer “advice” in the guise of selling?

Roper: The worst horror stories involve conduct that violates not just a fiduciary duty, but a suitability standard as well. The harm to investors from conduct that complies with the suitability standard tends to be more subtle, which is of course one of the reasons it is so hard to get regulators to act. So I guess I have two fears, one based on regulators’ doing nothing, and the other based on regulators’ adopting a rule that appears to raise the standard but doesn’t really change anything. If you read between the lines of the SEC’s recent request for information, that second option appears to be a very real risk.

In either case, we just get more of what we have now – investors who need to make every penny work for them paying too much for mediocre investments based on recommendations that don’t adequately assess what is in their best interests. Those investors may not have headline-grabbing horror stories to tell, but they end up with less money to retire on than they need to live comfortably or having to borrow extensively to fund their children’s college education. At least if regulators do nothing, we’ll be able to continue to press for action. If they pretend to adopt a fiduciary standard, but really just require brokers to make a few more disclosures about conflicts of interest, then we’ll have lost the opportunity to solve the problem for some years to come without have achieved any meaningful new protections for the customers of broker-dealers. Based on the assumptions in the SEC’s recent request for information, I am very concerned that this may be the direction in which it is currently headed, but I think we still have an opportunity to turn that around.

Actually, I have a third fear, and that is that the SEC adopts a tough fiduciary standard, and the broker-dealers who are brokers solely because they sell a few variable annuities will simply switch to equity-indexed annuities to evade the rules. After all, there’s a reason NAIFA and AALU have been the strongest opponents of a fiduciary standard. It is the brokers whose business is based on selling high-cost variable annuities loaded up with features the investor doesn’t really need who would be most affected by a strong fiduciary standard. Until we rationalize our regulatory approach to eliminate the inconsistency in standards across the financial services more generally, there will always be loopholes that financial service providers can use to evade effective regulation.

FN: Many of our readers are 401k plan sponsors. What can they do to insure they conduct the proper due diligence to insure their adviser is a real fiduciary?

Roper: [Editor’s Note: Roper starts by saying, “This isn’t really my area of expertise.”] I think the simplest answer is to ensure that their so-called adviser really is an adviser, for example a registered investment adviser, who is automatically subject to a fiduciary duty with regard to all their clients in all circumstances. After all, even if the SEC adopts a fiduciary standard for brokers, it will apply only to retail investors, so it is not clear how plan sponsors would be affected. That’s one reason the DOL rulemaking is so important. They need to close the loopholes that currently make it all too difficult to enforce the existing fiduciary standard.

FN: The vast bulk of our readers are in the financial service industry. How would you advise them to best promote their fiduciary services in a way that resonates with their clients?

Roper: One of the reasons I believe so strongly that we need to raise the standard for brokers is that I don’t think it is possible to compete effectively based on their heightened legal standard fiduciaries are subject to. As long as brokers are allowed to call themselves financial advisers, offer investment “planning” and retirement “planning” and other such advisory services, and market themselves as if they are acting as trusted advisers, investors are going to believe that that’s what they are, and true fiduciaries are going to find it difficult if not impossible to differentiate themselves. After all, research shows that investors don’t understand the difference between a fiduciary duty and a suitability standard, and many of them actually believe that suitability is the higher standard. So the only advice I guess I can offer is to continue to serve your clients’ best interests and let the results speak for themselves – that and join us in the fight to get a true, meaningful fiduciary standard applied to all investment advice regardless of the source.

FN: Lastly, we do have a number of regulators among our readership. What advice would you give them when it comes to drafting fiduciary language?

Roper: In a very real sense, the Securities and Exchange Commission created the problem that we are dealing with today because it put brokers’ interests ahead of investors’ interests. When brokers first started calling their sales reps “financial consultants” and “financial advisers” and offering financial plans and generally rebranding themselves as advisers, the Commission could have nipped it in the bud. They could have said that if brokers wanted to compete as advisers they had to be regulated as advisers. Brokers would then have been forced to make a simple business decision – did the benefits of competing as an adviser outweigh the costs of regulation as an adviser. But the SEC was so anxious to accommodate the broker-dealer community that it failed to meet its responsibilities to investors, and the result is the marketplace we see today – a blurring of lines between brokers and advisers, a significant overlap in the services they offer, inconsistent standards governing those services, and no conceivable way that the typical investor will ever be able to make sense of it.

That’s water under the bridge. But it is absolutely essential that regulators don’t make that same mistake again. That doesn’t mean that we are advocating a purist approach that doesn’t allow for a transaction-based business model. On the contrary, we believe there are investors for whom this is an attractive alternative, as long as the advice or recommendations they receive are truly designed with their best interests in mind. Simply requiring a few additional disclosures about conflicts of interest is not going to get us there. Any fiduciary rule must include a clear, enforceable, principles-based standard requiring the broker to have a reasonable basis for believing that their recommendation is in the best interests of the customer. That doesn’t mean the broker can’t get paid for his or her services. It doesn’t mean they can only recommend no-load products. But it does mean they can’t ignore costs or other considerations, such as tax consequences, that are important to the customer’s financial well-being. And once the rule is adopted, it doesn’t end there. The regulators need to be prepared to enforce the rule in a way that truly enhances protections for investors.

FN: Any final thoughts you’d like to leave our readers?

Roper: This has been an inordinately long fight, and it sometimes seems that we have precious little to show for it. But there has been progress. In the 1980s, many financial planners resisted the notion that they had a fiduciary obligation throughout the planning engagement. Now that is conventional wisdom in the planning profession. It wasn’t that long ago that the broker-dealer community denied that investors were confused. Now that is widely accepted by virtually all parties to this debate. And, while we may have disagreements over what a fiduciary standard for brokers should look like, the main trade association for brokers, SIFMA, has taken a major step in acknowledging the need for such a standard. We have an opportunity to make real progress. We mustn’t let it slip away with half measures and empty gestures that offer the appearance, but not the reality, of reform.

FN: Barbara, on behalf of and its many readers, thank you very much for taking the time to share your thoughtful insights and powerful advice with us. We can only hope our readers pass your ideas on to the right people. ... -sponsors/
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Fri Mar 15, 2013 8:26 pm

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Canadian financial advisors are not subject to a fiduciary duty to their clients by law, which puts an onus on financial advisors to have their paperwork in order.

“There’s nothing specific in law that requires an advisor to put a client’s interests ahead of his own,” Ilana Singer, Toronto-based securities lawyer and Deputy Director of the Canadian Foundation for Advancement of Investor Rights (FAIR Canada).

Ms. Singer told Financial Planning Week’s 2020 Vision Symposium in Toronto last October, that Canada’s courts decide on a case-by-case basis whether a fiduciary duty exists. “A court’s determination is based on an examination of the specific facts of each case. Canadian courts have generally found fiduciary duties to exist in client-advisor scenarios where elements of trust, confidence, vulnerability, and reliance on skill, knowledge and advice are present.
“Another factor that courts look to are the professional rules or codes of conduct governing the actions of the advisor,” she added.
Ellen Bessner, senior litigation partner at Cassels Brock & Blackwell LLP in Toronto, said that legislating the formal designation of advisors as fiduciaries is an unnecessary step. “Financial planners need to be honest, trustworthy and put their client’s interest first – and disclose any conflicts of interest,” she said. “The word ‘fiduciary’ doesn’t mean anything.”

Advisors need to document their clients’ level of financial sophistication, Ms. Bessner emphasized. “Paper your file with questions that tell you how sophisticated your clients are. Do they ask intelligent questions that show they’re not asleep at the wheel? Do they read their financial statements? Do they understand them?”
Advisors need to make sure their letters of engagement and investment policy statements clearly outline mutual expectations and the manner in which the advisor is being paid.
And advisors who are only licensed to sell mutual funds and insurance have to tell their clients the parameters within which they can operate, and what their clients’ other options are, Ms. Bessner added.
Because courts look to codes of conduct set by professional associations, these organizations have to set standards for their members’ fiduciary obligations to clients, noted John Murray, Vice President of standards enforcement at the Institute of Chartered Accountants of Ontario.
And the standards need to define very clearly just what putting the client’s interests first means, Mr. Murray added. “Some of the current commission structures could be seen to be violating this principle.”
John DeGoey, Vice President at Burgeonvest Bick Securities Ltd. in Toronto, added that firms that provide financial or other incentives for investing clients in certain products may be causing their advisors to cross the line. ... ur-clients’-level-of-financial-sophistication/
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Fri Mar 08, 2013 8:56 pm

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too funny!

A long list of Canadian sellers/dispensers of investment products/"advice"........all lining up to poke at industry proposals to protect investors better........a mandatory best interest standard...........which used to exist as little as ten years ago, hmmmm. At least all the training manuals in the industry said it existed.

Read up on how your very own financial "advisor" is lobbying in the background to not have to place your interests ahead of their own.........

then view this video and learn a bit more of the bait and switch game you are a victim of........

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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Thu Feb 28, 2013 3:32 pm


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Out dated legal arguments re fiduciary obligations!
Posted on February 26, 2013
Canadian industry submissions on the CSA Best Interests Standards are relying on out dated legal arguments, which were themselves based on no longer relevant service relationships, for determining whether fiduciary duties apply to advisory relationships.

I have argued that the complexity of the process underpinning the relationship imbues the relationship with fiduciary type duties because of the considerable discretion the advisor has over the processes that comprise portfolio construction, planning and management (advice) irrespective of whether the client has the final decision.

A recent 2010 article by Arthur Laby, Professor of Law at Rutgers Schools of Law (US), argues, inter alia, that in the US brokers were only allowed to evade a fiduciary type responsibility in the 1940 Act because their advice was incidental to the transaction. This is no longer the case. As is the case with Canada, advice has become the predominant service activity and the transaction incidental.

“The decision to exclude brokers that provide advice from the Advisers Act may have been appropriate in 1940 when advice was a minor ingredient in the services provided. Today, however, brokers’ functions have changed and advice is more central……

….When a customer turns to a broker for advice, the customer reposes discretion in the broker to provide appropriate guidance and direction. Moreover, the broker has the ability to affect the customer’s legal position, either directly, in the case of a discretionary account, or indirectly, in the case of a non-discretionary account, assuming the customer accepts the advice. The furnishing of advice therefore calls for the imposition of fiduciary duties…..

….These titles imply that the individual is not acting at arm’s length. They (titles) are meant to induce a customer to repose trust in the professional as a neutral source of research and recommendations. Because advice is such an important part of a broker’s activity, and because dispensing advice calls for the imposition of fiduciary duties, brokers that give advice should be subject to fiduciary obligations…..

…..Though at one point it may have been appropriate to allow brokers to provide advice incidental to brokerage without the obligations imposed on advisers, the exclusion is no longer applicable because providing investment advice looms as the more significant aspect of a broker’s activity”

I have taken some considerable excerpts from the article itself (some noted above) and reproduced them below, but I would recommend reading the entire document.


Nature of the Relationship:

Although the differences may be exaggerated, the fiduciary obligation imposed by the Advisers Act appears broader than the duties imposed on brokers through application of the Exchange Act’s antifraud rules and FINRA requirements.

The primary reason for this stems from the way courts and regulators view the scope of activity undertaken by each when administering non-discretionary accounts. As discussed, the duty imposed on an agent depends on the scope of his or her activity.

Although the scope of activity can be altered by contract, in the case of non-discretionary accounts, a broker’s activity generally is limited to conduct surrounding a particular transaction, whereas the scope of an adviser’s activity extends beyond a particular trade. The different scope of activity yields different duties.

Consider the scope of activity undertaken by advisers. In some cases, an adviser might limit its advice to providing a financial plan, or it might restrict its advice to a particularly type of security, such as municipal bonds, or a particular sector, like technology.163 In those cases, the adviser’s fiduciary duty would be commensurate with the scope of the relationship.

Most advisers, according to the Rand Report, however, agree to provide portfolio management services. The phrase “management services” connotes an ongoing relationship, which extends beyond the time a particular trade is made. Moreover, the scope of activity for federally registered advisers is usually to provide ongoing, continuous services, even for a non-discretionary account.

If an adviser has agreed to provide continuous supervisory services, the scope of the adviser’s fiduciary duty entails a continuous, ongoing duty to supervise the client’s account, regardless of whether any trading occurs. This feature of the adviser’s duty, even in a non-discretionary account, contrasts sharply with the duty of a broker administering a non-discretionary account, where no duty to monitor is required. The two accounts in this example are similar in nature—both the broker and the adviser hold themselves out as providing non-discretionary investment advice—yet the adviser’s duty entails ongoing diligence while the broker’s duty is episodic.

……..For non-discretionary accounts, however, brokers’ duties tend to be intermittent, while advisers’ duties tend to be ongoing—extending to dormant periods of inactivity in the customer’s account. During these periods, a typical stockbroker owes no duty to the customer while an adviser acts more like a protective guardian and has a positive duty to act should market conditions or the client’s circumstances call for a change.

…….whether fiduciary duties should be imposed on brokers that provide advice. In 2005, the SEC recognized the importance of this issue, calling for a study regarding whether brokers that provide advice should be subject to fiduciary obligations normally imposed on
advisers. This is precisely the question taken up in the Obama Administration’s 2009 White Paper and in the Dodd-Frank Wall Street Reform Act. Although brokers have always provided advice, that component of their services did not predominate at the time the Advisers Act was passed.

In recent years, however, advice has displaced transaction execution as a chief activity carried out by brokers. It comes as no surprise that today brokers market themselves as financial advisers rather than stockbrokers. This change in emphasis from execution to advice as a primary feature of a broker’s business represents a change in circumstances for the brokerage industry and justifies the imposition of fiduciary duties.

Although brokers historically provided advice to their customers, advice rendered in the past was relatively less significant in the context of the overall relationship than it is today. The Security Market study referenced above explained that in the 1930s, a brokerage firm’s relationship with a customer had four aspects. First, it acted as a broker in the purchase and sale of securities and in borrowing and lending stocks. Second, it acted as a pledgee, lending its own capital to the customer or advancing capital borrowed from banks. Third, it was the custodian of the customer’s cash and securities. Fourth, it exercised, “to some extent,” the function of investment counsel.

The advice component is last on the list and qualified in scope. A history of the Merrill Lynch firm explains that, in the early part of the twentieth century, many brokerage firms did not do much more than (order) execution—their sales forces were primarily intermediaries arranging trades on secondary markets—and the information available to investors seeking advice was rather meager. Open a modern description of the activities of broker-dealers and advice often is paramount.

….primary reason for this shift is technology.209 In the early part of the twentieth century, transaction execution was difficult to accomplish. Today, advances in technology have reduced the time and cost to process trades.210 As a result, the advice component of brokerage business has eclipsed transaction execution in importance. When asked which professional services matter most, survey responders chose retirement planning, investment advising, financial planning, and estate planning over executing stock or mutual fund transactions and other possible responses

Although brokers provided some advice when the Advisers Act was passed, as long as advice was not the primary service offered to investors— that is, as long as the advice was “solely incidental” to brokerage services performed—the broker was excluded from the definition of adviser and the Advisers Act’s fiduciary standard was not imposed.213

The decision to exclude brokers that provide advice from the Advisers Act may have been appropriate in 1940 when advice was a minor ingredient in the services provided. Today, however, brokers’ functions have changed and advice is more central

When a customer turns to a broker for advice, the customer reposes discretion in the broker to provide appropriate guidance and direction. Moreover, the broker has the ability to affect the customer’s legal position, either directly, in the case of a discretionary account, or indirectly, in the case of a non-discretionary account, assuming the customer accepts the advice. The furnishing of advice therefore calls for the imposition of fiduciary duties.

….Because advice has eclipsed execution as the primary service performed by broker-dealers, advice can no longer be considered “solely incidental” to brokerage. Indeed, it is brokerage that appears to be solely incidental to advice. In the 1980s, to better compete with investment advisers, many brokerage firms began to offer financial planning services and shun the title of stockbroker.224 Instead, broker-dealer registered representatives began to label themselves as financial advisors, financial consultants, financial representatives, and investment specialists.

These titles imply that the individual is not acting at arm’s length. They are meant to induce a customer to repose trust in the professional as a neutral source of research and recommendations. Because advice is such an important part of a broker’s activity, and because dispensing advice calls for the imposition of fiduciary duties, brokers that give advice should be subject to fiduciary obligations.

The provision of advice is the type of activity where agency costs are high and, therefore, fiduciary protections are needed most. It can be difficult ex post to determine the wisdom of an investment recommendation at the time it was made. A decision to recommend one investment over another is based on many factors; one can seldom know if self-interest was a motivating force. The imposition of the fiduciary duty of loyalty and the regulation of conflicts are ways to control the risk that an investment recommendation will not be objective.

………….. A fiduciary duty should be imposed on a broker providing advice regardless of the method of compensation employed. Customers who pay commissions need fiduciary protections to guard against opportunism that may arise in any commission-based business.

In the world of securities brokerage, a common risk in a commission-based account is the risk of churning, where a broker makes excessive recommendations.240 Customers who pay an asset-based fee are equally in need of protection.

An asset based fee, although reducing the likelihood of churning, increases the chance that a broker-dealer will ignore a customer’s account—aptly called “reverse churning”—because the firm will be paid regardless of whether a transaction occurs.241 In a fee-based account, regulators are concerned about “opportunism by neglect”—inattention and indifference to the account. Payment of a fixed asset-based fee provides disincentives to monitor, which results in neglected customers who receive little or no advice and seldom trade even when transactions are called for.

Though at one point it may have been appropriate to allow brokers to provide advice incidental to brokerage without the obligations imposed on advisers, the exclusion is no longer applicable because providing investment advice looms as the more significant aspect of a broker’s activity. Moreover, both types of remuneration brokers receive—commissions and asset-based fees—call for the introduction of fiduciary duties

(advocate comment: I bow down to Andrew Teasdale, author of this article, as it is THE BEST understanding I have ever seen of the duty of care/fiduciary duty discussion around investment "advice".

If you have some this far and read this much, then you can handle another 3 minutes on the topic, not as good as Andrew's, but might lend additional perspective: see this video please (just the first three minutes is all you need to see, honest......)
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Sat Dec 22, 2012 10:41 am

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Fiduciary Duty

There is a growing disconnect between consumers and financial service representatives. The complexities of compensation methods for financial products and the blurring grey areas between sales and advice make it increasingly difficult for consumers to know whether or not their financial service representatives are truly acting in their best interests. Media coverage of financial scandals and misconduct by financial service representatives in Canada and the neighbouring United States has created mistrust between the public and the financial service industry.

As a result, there have been increased calls in Canada and internationally to hold financial service representatives to a higher standard: a fiduciary standard of care.
There are five generally accepted principles behind a fiduciary relationship. These are:

1. Put the client’s best interest first;
2. Act with the skill,care,diligence and good judgement of a professional;
3. Provide full and fair disclosure of all important facts;
4. Avoid conflicts of interest; and
5. Fully disclose and fairly manage—always in the client’s favour—unavoidable

There is a legal argument that suggests that a fiduciary relationship cannot be imposed by statue: it either exists or it doesn’t, based on the terms of the relationship. In a true fiduciary relationship, a client is able to vest the utmost trust in their fiduciary. The client would be completely relieved of the need to engage with the fiduciary. Such a relationship does not however reflect the nature of the relationships between most clients and their financial service representatives.

Today, consumers are taking a more active role in their own financial situation. Many clients research products and direct investments, suggesting that the very nature of the relationship may not truly be a fiduciary one. In fact, a financially literate consumer should take an interest in, and participate in, financial decisions that may affect their financial futures. Yet, it is undeniable that financial service representatives need to put the interests of the client above their own.

The common principles of a fiduciary relationship are important for financial service professionals to recognize and strive for, but imposing and using a fiduciary standard of care on all financial service professionals is not a realistic solution due to the practical implications of enforcing it, and the legal arguments which would suggest that in fact the nature of the relationship is not that of a “true” fiduciary.
Admittedly, there needs to be a better solution than the existing model. Currently a “Know Your Client” form is the standard for determining suitability of investments and............

Full document available at this link: ... p-fpsc.pdf

and here : ... W5rR2VYTHM

(I give the FPSC full credit for this document, and the client-first thinking behind it. It is the first I have seen of such from them and it is encouraging, Advocate for best industry practices)
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Wed Nov 28, 2012 10:12 am

Quality of financial advice Australian study :2003 Australia Securities & Investments Commission The following deficiencies were regularly found in plans assessed as part of the study:
• failing to provide an Advisory Services Guide (14% of planners),
• failing to show how the recommended strategy and action was appropriate for the client,
• plans were hard to read and ‘padded’ with reams of generic information,
• planners ignored key client requirements and didn’t explain why,
• higher-fee investments (including wrap accounts and master trusts) were recommended without showing why these were better,
• planners recommended selling existing investments without showing how new investments or investment vehicles would be better.
The 54 page report noted: “ It is worrying that 14% of the plans from CFPs and 12% of plans from CPAs were in the “Poor” or “Very Poor” categories. “ and “The overall quality was significantly worse if the planner was only paid by commission- 44% of the “commission only” plans were graded “Poor” or “Very Poor” .$file/Advice_Report.pdf
This study may be written in 2003 but it is what we see here in Canada in 2012.Since 2003, the ASIC has moved to a fiduciary level for advisers.

Thanks to Ken at for this post
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Thu Nov 01, 2012 8:33 am

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The financial industry's long path to putting the client first
The Globe and Mail
Published Wednesday, Oct. 31 2012
Opposition to a proposal to create a tougher standard of care in the financial industry is leaving one of the staunchest supporters of new regulation dismayed that a long-fought battle could drag out for more years to come.

After years of study, Canada’s securities commissions issued a consultation paper last week asking for comments on the idea of stiffening the legal duties owed by financial advisers to their customers when recommending investments.


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While advisers are now required to recommend “suitable” investments to their clients, a proposed “fiduciary duty” rule would make it mandatory to act in the best interests of clients at all times.

The higher duty of care could have profound implications. A fiduciary duty – similar to standards imposed on doctors and lawyers – requires always recommending the best choice for the client without regard to which product may pay more fees or incentives to the adviser.

The consultation paper from regulators takes no position on the issue, but asks for comment on key issues about whether a fiduciary duty would change anything significant about how advisers work. There is no promise that regulatory change will result from the consultation. If regulators opt to proceed, they would need to draft and publish specific proposed reforms for further comment.

The neutrality of the paper, the slow pace of movement on the issue and the strong industry opposition that has emerged to the proposal have all dismayed lawyer Ed Waitzer, a former chairman of the Ontario Securities Commission who has been championing reform.

The “fiduciary duty” idea has been around for 20 years, he says, and with the headwinds of opposition it is facing, it may languish for years to come. “This could easily become one of their intergenerational projects,” he warned.

In the meantime, Mr. Waitzer said he worries that Canada’s securities commissions are “ragging the puck,” by writing a complex consultation paper that gives them the appearance of being busy on the file while not actually pushing ahead on reform.

The “worst of all worlds” is to keep waiting for action on an issue that will never proceed, he argues, and the better option could be to move ahead with a different idea, such as simply banning certain types of commissions for investment advisers, as Britain has done.

However, Ontario Securities Commission vice-chairman James Turner said progress is being made.

“This is an important step to have the [regulators] go out with a consultation paper on this proposal. Clearly it’s a matter on our policy agenda,” Mr. Turner said. He argues the consultation is necessary because there has not been a “full canvassing of views” on the issue in Canada.

Securities regulators have had input from the investment industry, however. The Investment Industry Association of Canada, an industry organization for brokerage firms, has met with Canadian Securities Administrators officials and submitted a paper on the issue last year questioning whether reforms would have any practical value, said IIAC policy director Michelle Alexander.

“We are pleased the paper is looking at industry concerns … and they’re really seriously considering whether or not a fiduciary standard should be introduced in Canada,” she said. “We’re pleased that they haven’t decided at this point that a major overhaul is required of the statutory requirements.”

The industry fears new legislative requirements could be heaped on top of newly tightened industry rules governing conflicts of interest and disclosure of fee information to clients. A fiduciary standard could be redundant at a minimum, and carries risks of unintended consequences, Ms. Alexander said.

One risk is that all commission-based transactions could be viewed as inherently conflicted, requiring a substantial shift to new sorts of arrangements whereby advisers charge annual fees for their work rather than earn fees from commissions on trades. And that could be far more expensive for many clients, she warned.

Rick Nathan, managing director of investment firm Kensington Capital Partners Ltd., said he does not believe a fiduciary duty standard would actually change how advisers deal with clients. He said the industry already sees its role as helping clients pick suitable investments.

“I’m not sure it would make much difference,” Mr. Nathan said, when asked about the issue while speaking on a panel at an OSC event on Tuesday. “Because I actually believe most advisers wouldn’t understand the additional legal context … I don’t think it would change their behaviour.”

Mr. Waitzer argued the introduction of a fiduciary standard would have a powerful effect on how investment advisers approach their work and make recommendations to clients, noting that similar reforms have had a big impact on the work of other professionals, including pension fund trustees and corporate directors.

“It tremendously changes” how you approach your work, he said. ... le4804305/
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Mon Oct 29, 2012 12:47 am

‎"The lower suitability standard allows advisors and financial services firms to push proprietary and higher fee/commission products, conduct less due diligence, and offer less comprehensive and less constructive advice. It also affords the client significantly less recourse to address wrongs when they do occur. This to a client who thought they were working with a firm or advisor who had their best interests at heart. After all, that's what was implied in the marketing material..."

Screen Shot 2012-10-29 at 1.42.09 AM.png

Written by Chad Creveling, CFA & Peggy Creveling, CFA
Tuesday, 17 July 2012 18:33

"It said financial advisor on my business card, but that's not what JPMorgan actually let me be," said one former broker. "I had to be a salesman, even if what I was selling wasn't that great."

"It was all about the money, not the client," said another former advisor.

These are quotes from a recent New York Times article and editorial concerning one of the latest scandals to emerge from the financial services industry, where internal emails and comments from former advisors with JPMorgan's investment advisory operations clearly show the culture of the firm placing its interests ahead of those of its clients.

Unfortunately, this type of practice occurs all too often in the aggressive sales-oriented cultures that permeate bank and broker-dealer financial advisory businesses catering to ordinary investors. Despite marketing pitches of "trusted advisor" and dressed-up titles, financial incentives and corporate culture often pressure these "financial advisors" to aggressively sell products and services that maximize their employer's profit, rather than offering objective advice in the best interest of the client.

According to the New York Times, "what investors have to realize is that the nation's securities laws still do not impose a fiduciary duty on brokers who give investment advice, which would require them to act in the best interest of their clients. Brokers have to recommend 'suitable' investments, but that standard gives them leeway to pitch products that boost their firm's profits, exposing investors to misleading pitches and overly expensive products."

While the New York Times article deals specifically with a U.S. firm and U.S. securities law, these practices are prevalent in all markets, and even more so in offshore markets where lack of regulation and customer abuse is rife.

Fiduciary Standard

Arising out of a historical patchwork of regulation, different types of financial firms offering investment advice are held to different legal standards in the United States.

An investment advisor as defined under the Investment Advisers Act of 1940 is "any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities."

That sounds pretty much like what every financial advisor, whether working for a bank, broker-dealer, or registered investment advisor firm, claims to do.

The difference is that a Registered Investment Advisor (RIA) is formed and regulated by the SEC under the Investment Advisers Act of 1940, and as a consequence of being formed under that Act, is held to a fiduciary standard.

That means that an RIA is legally obligated to place the interest of its clients ahead of its own and to fulfill critical fiduciary duties such as attempting to avoid outright conflicts of interest. Under this standard, an RIA is legally obligated to operate in the best interests of the client.

This is what most investors think they're getting when they work with a financial advisor or financial services firm, but that's not necessarily the case or the norm.

Suitability Standard

Broker-dealers and other non-RIA financial firms providing financial advice are not fiduciaries, which means they are not legally obligated to work in your best interest and avoid conflicts of interest. These firms are regulated under the Securities and Exchange Act of 1934 and are only required to provide "suitable advice" to their clients, even if that advice is not in the best interest of the client as under the fiduciary standard. The suitability standard does not require the broker-dealer/financial firm to place the interests of the client ahead of its own.

The Financial Industry Regulatory Authority (FINRA), the self-regulating authority that governs broker-dealers, recently announced changes to its suitability rules. The old suitability rule stated:

In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.

Under the new rules, which went into effect on July 9, 2012, an associated person (adviser or firm) shall:

Have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile.

The new rule expands the information the advisor must attempt to gather to determine suitability. It also expands the broker-dealer's suitability obligations, but falls far short of the fiduciary standard.

Why It Matters

In the old days, broker-dealers didn't give investment advice. They only executed orders to trade stock or bonds or at best only provided advice incidental to transactions executed on behalf of the client. There was arguably no need for a fiduciary standard. This has all changed today.

In an effort to bolster profits and to smooth out volatile proprietary trading revenues, banks/broker-dealers are increasingly entering the investment advisory business. The result is that different firms providing the same investment advice are being held to different standards of care in regards to their clients. Moreover, with everyone using the same titles and marketing pitch, there is no way for clients to tell the difference.

The lower suitability standard allows advisors and financial services firms to push proprietary and higher fee/commission products, conduct less due diligence, and offer less comprehensive and less constructive advice. It also affords the client significantly less recourse to address wrongs when they do occur. This to a client who thought they were working with a firm or advisor who had their best interests at heart. After all, that's what was implied in the marketing material.

Attempts to Impose a Uniform Standard

Many (including the Obama administration) believe that all firms providing investment and other financial advice should be held to the same fiduciary standard of care towards their clients. This would mean replacing the suitability standard that currently governs broker-dealers with the fiduciary standard that now governs registered investment advisors.

Obviously, broker-dealers oppose this change and have every financial incentive to avoid becoming fiduciaries. So far, attempts by the Securities and Exchange Commission and the Obama administration to impose a single fiduciary standard have been blocked by the deep pockets of broker-dealers and their heavy lobbying of Congress. This latest change in their suitability standard is an attempt to get out in front of the issue and shape the outcome.

The fight is not over, but for now, it's up to the consumer to look out for themselves and determine who is acting in their best interest and who is not.

You Need to Look Out for Yourself

While the details covered here are specific to the U.S., similar issues exist in the U.K., Australia and other developed markets. Even more caution is warranted in the offshore markets where the conflicts of interest and lack of standardized legal care to the client (not to mention outright fraud) are even more prevalent.

Before working with any advisor, ask them to show you in writing the legal standard of care they are required to follow and the regulatory authority by which they are governed. After all, it's your money and your future.

About Creveling & Creveling Private Wealth Advisory

Creveling & Creveling is a private wealth advisory firm specializing in helping expatriates living in Thailand and throughout Southeast Asia build and preserve their wealth. Through a unique, integrated consulting approach, Creveling & Creveling is dedicated to helping clients cut through the financial intricacies of expat life, make better decisions with their money, and take the steps necessary to provide a more secure future. For more information visit ... heirs.html
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Fri Oct 26, 2012 8:33 am a billion or so a week, skimmed with the aid of a deceptive industry on this matter.......I predict it will be years of serious discussion by regulators and no serious intent........after all, a man on a $100,000 salary will do .................whatever he is told to do.

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Canadian securities regulators are weighing the pros and cons of imposing a stricter fiduciary or “best interest” standard on financial advisors who provide advice to retail clients.

Investor rights advocates say advisors should be held to a higher standard of care, similar to the fiduciary duty of a company executive or lawyer — and note that other jurisdictions including the European Union and the United States are moving in this direction.

But improvements to advisor responsibility and accountability in Canada have been slow to come, despite regulatory initiatives dating back to 2000.

“The application of such a standard has been the subject of much debate in Canada and internationally, and requires careful consideration to determine the right solution for the Canadian context,” said Bill Rice, chair of the Canadian Securities Administrators and of the Alberta Securities Commission.

The CSA, the umbrella organization for Canada’s 13 provincial and territorial securities regulators, published a “consultation” paper on the issue on Thursday and will be seeking comment from the investors and other market players until Feb. 22, 2013.

The long, winding road to advisor reform
The paper does not draw a conclusion as to whether a new regime including a “fiduciary” standard is required, but Mr. Rice said it demonstrates the commitment of Canadian regulators across the country to examine opportunities to improve the relationship between clients and their advisers “to ensure effective protection for Canadian investors.”

In 2004, the Ontario Securities Commission proposed a Fair Dealing Model, which aimed to create a single licence for all financial service providers, and establish standards that would create understandable disclosure, meaningful communication of expectations, and effective management of conflicts of interest.

But, over the years, the Fair Dealing Model splintered off into separate efforts undertaken by the OSC, the Investment Industry Regulatory Organization of Canada (IIROC), and the Canadian Securities Administrators (CSA).

In March, IIROC began phasing in some reforms to disclosure requirements and enhancements to the standards advisers must meet when assessing the suitability of investments for their clients.

Jim Turner, vice-chair of the Ontario Securities Commission, said the current consultation will not slow down or derail other efforts to make improvements to the relationship between investors and advisors and enhance investor protection.

“It’s a broader concept,” he said, adding that the OSC is working through the CSA because the issues are relevant to investors across the country.

“We consider it an important step forward,” he said.

Michelle Alexander, director of policy at the Investment Industry Association of Canada, said her agency, which represents dealers and advisors across the country, is pleased that regulators listened to industry concerns expressed this summer and are now taking the time to study the issue before deciding if a major overhaul is required.

“It’s critically important that the CSA clearly articulates the benefits” before undertaking such an overhaul, she said, adding that unintended consequences could include higher costs and less choice for investors when it comes to advice.

Ermanno Pascutto, the executive director of investor rights advocate FAIR Canada, said the CSA consultation process is an important event for retail investors in Canada, though he acknowledged that it could be a long process because “policy development in Canada does not move at lightning pace.”

Nonetheless, Mr. Pascutto said he is encouraged that regulators highlighted the common misconception among investors that advisors must always act in the best interest of their clients.

“There is a big gap between what everybody thinks and what the law is,” Mr. Pascutto said, noting that the client’s best interests are not necessarily served under current requirements that advisors deal honestly, fairly and in good faith and make suitable recommendations.

Investor advocates are critical of structures that compensate advisers through commissions for selling certain products, rather than for the advice they provide. ... -advisors/

(as said recently by Mike: "What about recommending a two standard approach. If you call yourself a 'salesperson' then there is no fiduciary responsibility. If you hold yourself out as an advisor or similar term, you are accepting of the fiduciary responsibility. Terms like 'registered representative' are industry insider terms and should not be used to address the public.")

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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Thu Oct 25, 2012 8:23 pm

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1) Introduction
2) Background
October 25, 2012
Administering the Canadian Securities Regulatory System

link to entire document here: [url] ... y-duty.pdf
and for when they remove it like they removed the FAIR DEALING MODEL PROPOSALS of the past decade (similar client protective proposals which were also put into effect on the 12th of never) it is saved here:
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Tue Sep 25, 2012 9:01 am

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Broken Brokerages: Finance Luminaries Join Fight Over Uniform Fiduciary Standard

“The trouble is that brokers are screaming, ‘Trust me, trust me, you don’t have to bother your little head. I’ll take care of you, I’ll manage your securities and give you financial planning for you and your children and everybody else,’ Tamar Frankel, a law professor at Boston University told us. “‘Trust me, give me discretion to decide what to do with [your] money.’ If that’s not fiduciary, then what is?”

Ms. Frankel was on the phone to discuss the most important consumer issue you’ve probably never heard of. For more than half a century, the financial professionals who offer investing advice have fallen into two broad categories. Broker-dealers charge commissions on the securities they trade on behalf of clients. Investment advisers charge fees, typically as a percentage of assets under management. There’s another crucial difference. Investment advisers must register with the Securities and Exchange Commission and have a fiduciary duty to act in their clients’ best interests. Brokers, meanwhile, are self-regulated and operate by the standard of “suitability.” (advocate comment NOT part of this article: the 150,000 retail broker/salespersons in Canada mostly misuse the title of "advisor" in their marketing and advertising, to avoid letting customers know they are merely salespersons)

“The brokers say they have a rule, and the rule is, they must give you suitable investment advice,” Ms. Frankel said. “I use my expertise to give you something that you can use, that’s suitable for you. But suitability doesn’t mean cheapest. It may be suitable, but you can go next door and get it at half price.”

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 called for the SEC to study the possibility of governing the two groups under one regulatory regime. But two years after Congress passed the law, the process has stalled. Worse, as far as Ms.Frankel is concerned, the Securities Industry and Financial Markets Association, or SIFMA, as the securities industry lobbying group is known, has put forward a vision of the rule that she said would turn the definition of the fiduciary standard on its head.

She isn’t alone. Wednesday, former chairman of the Federal Reserve Paul Volcker, Nobel-prize winning behavioral economist Daniel Kahneman and Vanguard Group founder John Bogle joined Ms. Frankel and eight other academics, investors and former regulators signed a declaration in support of a uniform standard that would require broker-dealers and investment advisers to act in their clients’ best interests. Their beef? “The fact is that brokers who are not registered with the Securities and Exchange Commission (SEC) are not required by law to put their clients first,” the statement read in part.

Or as co-signer Burton Malkiel, author of A Random Walk Down Wall Street, told The Observer: “If you’re a securities broker, you’re going to want to sell the things where you make the most money, where your commission is greatest. For me, that’s the opposite of how it should be. Investment advice should have the fiduciary duty that the customer comes first.”

The signatories to the declaration are joining the battle at a moment when the action has ground to a halt. An SEC study released in early 2011 recommended the creation of a uniform standard, and agency chairman Mary D. Schapiro has called the standard a priority. A late-2011 ETA for a proposed rule came and went, however, and in January, the SEC said it would be conducting a survey in support of a cost-benefit analysis for the rule. In support of the declaration, some of the signatories are visiting the SEC next month to argue for a fiduciary standard that would require investment advisers and broker-dealers to serve clients’ best interests and avoid conflicts.

Still, the SEC’s cost-benefit survey has yet to come out, and we couldn’t find anyone who would hazard a guess at when a rule will ultimately be proposed. “The longer it languishes, the more difficult it gets to move things along,” Dan Barry, head of government relations for the Financial Planning Association, told us, adding that he doesn’t expect to see a proposal this year.

Not only is the rule-making in a holding pattern, but there are some involved in the debate who think the sides aren’t so far apart. “SIFMA agrees something should be done, we think something should be done,” Mr. Barry told us. “There’s an unusual degree of support across a broad population of stakeholders,” agreed Barbara Roper, director of investor protection at the Consumer Federation of America.

Which isn’t to say that broker-dealers and investment advisers are joining hands and singing Kumbaya on the issue. “The investment adviser community, to my way of thinking, wants to take that statute that was designed to their business model and export it to the broker-dealer community,” Ira Hammerman, SIFMA’s general counsel, told us. “SIFMA is trying to take a more pro-investor, a more realistic approach,” he said, adding: “Customer choice is really at the center of what we’re saying.”

For their part, some investment advisers think SIFMA is trying to redefine the concept of the fiduciary standard to fit its current business model. “They say that all products now available through brokers should be available through the fiduciary standard,” said Knut Rostad, founder and president of the Institute for the Fiduciary Standard, which drafted the declaration signed by Ms. Frankel, Mr. Malkiel and others. “They are changing what the fiduciary standard means, and the additional point is that they’re changing the meaning to what the suitability standard currently is now.”

The parallel regulatory frameworks governing investment advisers and broker-dealers grew out of the stock-market crash of 1929. Broker-dealers were regulated under the Securities Exchange Act of 1934, while the Investment Advisers Act of 1940 and a series of court decisions set the standard of behavior of investment advisers registered with the SEC.

The dual structure was less of an issue in the early days, when the securities available to investors were fewer and far simpler. When a stockbroker called a customer to tout a company, the customer had a reasonable understanding of what the broker stood to gain—a commission on the securities bought and sold—and a sense that the broker would promote good investments—or risk losing future business.

As the financial products became more complex, incentives were harder to discern. Mutual funds, for instance, offered varying fee structures, allowing investors to decide how they wished to pay for the product: With an up-front sales charge that took an initial bite out of the principal, or with ongoing fees. An investment adviser registered with the SEC was required to recommend the product in a client’s best interest. A broker-dealer, on the other hand, could offer a client either one.

“If the branch manager tells you one product gets you 3 percent commission and that one gets you 7 percent, it’s the nature of human beings and capitalism and life that you’re going to sell that one,” Josh Brown, author of the blog The Reformed Broker and the book Backstage Wall Street, told The Observer. “There’s nothing illegal about it. As long as the product is suitable for the client, it can be done.”

Mutual funds, Mr. Brown said, are a tame example: “Principal protection funds, high-fee annuities. Private REITs, fucked IPOs, secondary offerings. There’s a litany of shit that you won’t find a fiduciary adviser selling.”

Which isn’t to say, supporters of the fiduciary standard would add, that brokers are bad actors by definition, but that the current regulatory regime creates situations in which the broker’s best interest may come in conflict with his client’s. SIFMA’s Mr. Hammerman didn’t dispute the point. “The broker-dealer model has many conflicts of interest,” he said. “If you’re a broker and you wanted a municipal bond portfolio, the best pricing might be trading with me because I have the best inventory for those bonds … And you say, ‘Fine, I’ll take it.’ I’m selling from my inventory a bond, and you’re buying it. We’re on different sides. There’s nothing wrong with that if you’re trading with me and I’ve given you disclosure. Or you might be more comfortable buying from a third party. The pricing might not be as favorable, but we can do that.”

That sounds a little like trusting Wall Street to deal fairly with less sophisticated investors—a notion with a history of, uh, mixed results—but Mr. Rostad said his group wasn’t trying to squelch all conflicts. “Commissions are a conflict, but they can be managed. In and of itself, proprietary products are not a conflict with the uniform standard.” The sticking point? “The issue with any conflict is, can you mitigate or manage the conflict so that you proceed in the client’s best interest?” he said.

Traditionally, broker-dealers have relied on written disclosures to mitigate potential pitfalls conflicts of interest. But disclosure is often insufficient protection: For one thing, how many investors read, let alone understand, the fine print at the back of a mutual fund prospectus? For another, academic research on the subject has shown that disclosure can create a false sense of safety with regard to conflict of interest.

Daniel Kahneman’s classic study on anchoring may indicate that once an investor has chosen to trust an adviser, a disclosure of conflict of interest is unlikely to shake the decision. The version of the uniform standard that Mr. Rostad is promoting calls for the disclosure of material facts. But a fiduciary rule that requires advisers to act in clients’ best interests would rely less on disclosure.“The bottom line of the research that we see is that even short, clear concise disclosure fails … in the sense that investors don’t believe it,” he said.

That’s one bottom line, anyway. Another is that a uniform standard is unlikely to be written anytime soon. Regardless of who wins the presidential election, meanwhile, it’s frequently speculated that Ms. Schapiro will leave the agency, making it anyone’s guess how rule-making will proceed under new leadership.

Perhaps because the battle is stalled, the crusaders for the fiduciary standard tend to take a philosophical tack. Mr. Malkiel told The Observer that he signed the declaration because he believes in the possibility of a “better world.” Andrew Golden, chief investment officer for Princeton University’s endowment, signed because the battle over the fiduciary standard is “about society, about protecting my mother and her personal account, about protecting my friends and my kids.”

“As the brokers themselves realize that they’ve signed onto something that calls for a standard of behavior, that they’re operating in companies that have signed on or been forced to sign on to that standard, it changes the appetite for the creation of certain securities and certain investments,” Mr. Golden said.

Mr. Rostad put it more grandly. “The capital markets depend upon trust, and the economy depends on the capital markets,” he explained. “We have a lot at stake in terms of making the free market economy work in a moment of historic, unprecedented levels of distrust and disgust.” ... /?show=all
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Thu Sep 13, 2012 10:02 am

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Investors ‘clueless’ about fiduciary duty
By Sheyna Steiner ·
Wednesday, September 15, 2010

Investors "clueless" about fiduciary duty

A study released Wednesday by the Consumer Federation of America, AARP, the North American Securities Administrators Association and various investment advisor and financial planning organizations has found that investors overwhelmingly support a universal fiduciary standard and, at the same time, are very confused about which financial professionals are now held to it.

The poll questioned 2,012 Americans, 1,319 of whom identified themselves as investors. The investment questions were asked only of investors.

The poll found that 9 out of 10 investors believe that a stock broker and an investment advisor who provide the same investment advisory services should have to follow the same investor protection rules.

Nearly all, 97 percent, agreed that investors' best interests should be the priority. Eighty-five percent believe that financial professionals should disclose conflicts of interest and the source of any commissions they might receive.

Again almost unanimously, 96 percent of Americans polled believe that insurance agents should be held to the fiduciary standard.

The majority of people polled were unsure which investment professionals have a fiduciary duty to their clients.

Three out of five believe insurance agents are held to a fiduciary standard.

Two out of three believe stock brokers are held to a fiduciary standard.

In a press conference this afternoon, Barbara Roper, director of investor protection at the Consumer Federation of America denounced the policies that enabled a double standard for investment professionals.

"This survey confirms that investors are clueless when it comes to the different standards of care that apply to brokers and investment advisers. This lack of understanding is not because investors are stupid. It is because, bluntly stated, the policy itself is stupid," she said.

"No one in their right mind would create a system in which individuals who call themselves by titles and offer services that are indistinguishable to the average investor are subject to two different standards when they do so," said Roper.

The results of the survey will be given to the SEC as they consider instituting a universal fiduciary standard on all financial professionals. Their decision is expected in January.

The Dodd-Frank Act stipulated that the SEC study the issue for 6 months following the enactment of the consumer protection bill – despite the fact that multiple independent surveys have been done on the issue, all coming to the same conclusion. The survey released today repeated questions asked in 2004 and 2007.

One (high) standard for all investment professionals seems like a no-brainer but some in the financial services industry still oppose it.

The benefit for investors is obvious and, in my opinion, any opposition is indefensible. Those who are against a fiduciary standard want to continue fleecing consumers with impunity.

But, what do you think, should all investment advisors, brokers and insurance agents be held to the same standard?

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Read more: Investors ‘clueless’ about fiduciary duty | ... z26Myo5Hws

(Advocate comment about the trick of fooling the public into belief the are getting something they are not: "Anything else is fraud, because the seller is delivering a service different from what the consumer thinks he or she is buying. " Edward Waitzer, Financial Post · Tuesday, Feb. 15, 2011) (Mr. Waitzer is a Bay Street Lawyer and former Securities Commission chair, and this quote ( by another person) appeared in his article.

Full article found here: ... caf9e71a16
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