I found a pony, but . . .

Following up on my last post, There has to be a pony in here somewhere!, I have continued to research and review the new “Financial Regulation” coming from Washington, DC.  At the time of this writing, the bill has passed the House of Representatives and it has yet to be fully debated and voted upon in the Senate.  If you have not read my previous post, I stated that “the proposals are actually an attack on capitalism and will hinder growth, not help it.”  I still believe this.  However, as an “eternal optimist”, I have continued to look for positives as a child-optimist who digs through horse manure to find a pony.  (Please read the previous post for a better understanding of what this means.)

I found a pony, but . . .

There is currently a battle being raged in the financial services industry and the battle ground is in Washington, DC.  This battle is over the standard of care for Investment Advice.  The question being ask is whether financial professionals should provide advice under a “Fiduciary Responsibility” or disseminate recommendations based on “Suitability.”  “Fiduciary Responsibility” is providing advice that is in the best interest of the client.  “Suitability” is providing products or services that are suitable for clients, but not necessarily what is in the best interest of the client.  For a point of reference, Doctors, Attorneys and Accountants are required by law to act in the best interest of their patients or clients.  Why shouldn’t all financial professionals act in the best interest of their clients, not just some?

As defined by securities law, there are really only two types of financial professionals: Brokers (also known as Registered Representatives) and Investment Advisors (also known as Registered Investment Advisors).  Brokers sell products to clients based upon a requirement of suitability.  Investment Advisors are required by law to provide advice based upon the best interests of the client.  Most investors do not know this.  In fact, a report by The RAND Institute for Civil Justice in 2008 found that 63% of investors believe that Registered Representatives (Brokers) are required to act in the best interest of clients (they are not), and 70% believe that Registered Representatives (Brokers) must disclose any conflicts of interest (they do not) 1.

Why aren’t all financial professionals required to provide advice in the best interest of their clients? Aubry & Eustice does not know, but we believe it should be the standard, as do most investors.

So, how does this battle relate to “Fin Reg” and finding a pony in a pile of horse manure?  As of right now, the “Fin Reg” bill that was passed in the House of Representatives empowers the Securities and Exchange Commission (the financial services regulatory body) to impose the same fiduciary responsibility on Brokers and Registered Representatives as it currently does on Registered Investment Advisors.  This is a very good thing as it will further protect investors. However, if the only way investors can be further protected is by hindering and harming the great American Economy, it is not worth it.  That is why Aubry & Eustice 2, among other Registered Investment Advisors, continues to try to educate investors as to what their options really are.

Ponies are nice creatures and can be very fun.  But no pony is worth keeping if it comes with a barn full of manure.

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1 From TD Ameritrade’s The Standard of Care for Investment Advice - Drawing a Clear Line of Distinction Between Fiduciary and Suitability.

2 Aubry & Eustice, LLC is a Registered Investment Advisor.  To view the firm’s most-recent Disclosure Brochure, please click here.

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