Finagling the Law By: Gabriel PotterMBA, AIFA® 2015.06.10

The new fiduciary proposals from the Department of Labor, which would expand the fiduciary standard to brokers giving advice to any retirement accounts or clients, are getting scrutiny from industry lobbyists.  The Securities Industry Financial Markets Association (SIMFA) released their own version of the fiduciary rule last week, as a counterpoint to the D.O.L. proposal. 

At first glance, the SIFMA proposal seems like a more strenuous guideline, in that it proposes a more universal fiduciary standard.  The DOL version allows for exceptions, whereas the SIFMA proposal removes confusion regarding to whom the rules apply.  On the other hand, the SIFMA proposal creates a new standard of care – the best interests standard – which is somewhere between a true fiduciary standard and the lesser suitability standard which governs broker behavior.  This lesser standard would allow sales of proprietary investment products, regardless of the conflict of interest.

Naturally, we prefer the idea of a universal standard; SIFMA is right to assert that a bifurcated standard creates confusion.  However, we have trouble seeing how the SIFMA proposal creates any additional protections for clients.  It looks like business as usual with some very minor adjustments. 

The best practice, of course, is a universal application of the highest standard – the fiduciary standard.

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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