Looking for middle ground in a fiduciary solution

Comparing the divide between advisers and brokers on the fiduciary debate to the Sunnis and Shiites battling in the Middle East, a former SEC official said creating a single standard for the two sides would spark trouble for both. "The two models have been in conflict for 20 years," competing for clients and representatives, said Robert Plaze, former investment management chief for the Securities and Exchange Commission, at the TD Ameritrade Institutional Fiduciary Leadership Summit in Washington Tuesday. "Both are protective; they grew up in different churches." Putting the two "in the same box" means advisers lose the advantage of being able to market their fiduciary role as a different or better alternative to brokers, he said. Instead, the solution may be to have the obligations of investment advisers kept in place and have the Financial Industry Regulatory Authority Inc. conduct broker-dealer rule making requiring their professionals work in the best interest of the customer, Mr. Plaze said. There would be some differences in order to accommodate aspects of a broker-dealer’s market making functions. Then, slowly, there could be a harmonization of the rules instead of bolting to a uniform standard. “A uniform fiduciary duty is deeply flawed because everyone has their own idea of what that should look like,” he said. (Related: Congressman explains why he's trying to stop SEC fiduciary rule) The SEC is considering whether to propose a rule to raise the investment advice standard for brokers. The Dodd-Frank financial reform law gives the commission the authority to pass regulation that would require anyone providing retail investment advice to act in the best interest of their clients. Advisers must currently meet that fiduciary-duty standard, while brokers are subject to a less stringent suitability rule that allows them to sell expensive investment products as long as they meet their clients' needs. Financial adviser Clark Blackman, founder of Alpha Wealth Strategies, said he fears small, fee-only registered investment advisory firms like his would be decimated if there is a single rule. "I fear the true fiduciary standard will be made impotent," he said at the conference. "The client-focused approach will be lost with harmonizing of the rules." Small firms won't have the funds to compete against the marketing muscle of large broker-dealers either, he said.