Universal Fiduciary-Duty Standard Could Be Costly

In an effort to determine the utility of creating a universal fiduciary-duty standard in the retail investment advice industry, a recent study by the Securities Industry and Financial Markets Association shows that a potential universal standard could be costly to investors without adjustments being made for special broker-dealer practices. Broker-dealers, who currently adhere to a suitability standard, can charge commissions and sell proprietary products. Under a universal fiduciary duty standard, broker-dealers run the risk of violating these duties by adhering to traditional broker-dealer practices. Accordingly, a shift of wealth toward fee-based investments advisors would result in additional fees (between 25-75%) being charged to the investors.

Critics claim the study has no value because the Dodd-Frank law already says selling proprietary products and charging commissions are not fiduciary breaches. The study also shows the universal fiduciary-duty standard would limit access to municipal and corporate bonds, 93% of which are purchased through brokerage accounts. Ultimately, SIFMA is looking to define the best possible standard of care for giving personalized investment advice to retail investors, regardless of whether the person giving the advice is an investment advisor or broker-dealer.