RIAs Urged to Milk Their Fiduciary Status to Differentiate From Brokers
The SEC’s recently approved Regulation Best Interest standard of conduct for broker-dealers stops short of applying the same fiduciary standard required of advisors. And John Anderson, managing director of practice management solutions for SEI’s independent advisor solutions, believes advisors should milk this distinction for all it's worth.
With Reg BI, RIAs should be “marketing the heck out of the fact that [they are] a fiduciary,” Anderson says.
The SEC voted Wednesday to approve its Regulation Best Interest rule package, which requires broker-dealers to act in the best interest of their retail clients.
The SEC says the rule package is designed to enhance the quality and transparency of retail investors’ relationships with broker-dealers and advisors. The regulator says the rule package brings the legal requirements and mandated disclosures in line with reasonable investor expectations, while preserving access – in terms of choice and cost – to a variety of investment services and products.
But Micah Hauptman, financial services counsel at the Consumer Federation of America, says Reg BI won’t change any practices in the brokerage industry because it simply codifies the existing standard under Finra rules.
SEI’s Anderson says RIAs are more strictly bound to act in the best interest of their clients and Reg BI “does not clearly define what best interest means.”
In stark contrast, the fiduciary standard for advisors is clearly defined, he says.
The SEC "has come out and said there is a real difference between brokers and advisors,” Anderson says. “If I’m an RIA, I’m putting out a huge marketing act saying the government has clearly defined the difference between RIAs and brokers.”
Plainly saying your RIA firm is a fiduciary will not necessarily be as effective in winning over new clients as proactively making it clear what this standard means, however, according to Anderson.
“I don’t think there is a client that can tell you what a fiduciary is,” Anderson says.
Instead, RIAs must explain to clients – prospects and existing ones – the meaning of the fiduciary standard and how this is beneficial to investors, according to Anderson.
Actions may be stronger than words in this regard.
Anderson suggests advisors use content marketing media – such as newsletters, blogs and social media posts – to highlight their fiduciary status to prospective clients.
“Big broker-dealer firms may have more marketing dollars, but smaller RIAs have good access to clients through content marketing and social media,” he says.
At The Fiduciary Group, being a fiduciary was crucial to the extent that the RIA decided to explicitly use the standard as its company name.
“Our firm is 50 years old and we started using the name ‘The Fiduciary Group’ 40 years ago,” says Malcolm Butler, president and CEO of firm, which has nearly $900 million in client assets.
“It’s nice to be at the vanguard of a fiduciary movement that has taken decades to come to this point,” Butler says.
The Fiduciary Group
Other RIAs have taken different approaches to getting across their fiduciary status.
Advisory firm Syverson Strege adopted the website URL ‘www.onlyworkforyou.com’ to help communicate their point.
“It’s interesting how that came about. We hired an advertising firm years ago ... And after weeks of discussion they said: ‘It’s simple, you only work for the clients and no one else,’” recalls Johnne Syverson, senior financial planner of the RIA, which has around $432 million in client assets. Syverson says his firm paid $5,000 for that IP address.
“A broker is basically an investment salesperson; they are not doing comprehensive financial planning. We are totally independent [fiduciaries] here. There are no trips to Hawaii and gold watches here [as incentives for sales],” he says.
Advisors shouldn’t solely rest on their fiduciary status, however. Advisors must back that up with the work that they do for their clients, according to both Syverson and Butler.
“I’m not all that into the moniker stuff. [Syverson Strege] bases everything here on its relationships with clients” and conducting “financial planning, heavy estate planning, and giving heavy advice,” Syverson says.
The Fiduciary Group applies the fiduciary standard in all its services, such as investment, trust and estate planning, according to Butler.
Butler says his firm has compliance protocols to keep it in line with the fiduciary standard the firm is required to comply with. “It’s part of our culture,” he says.
SEI’s Anderson believes the fiduciary standard distinction for advisors may eventually become less of a differentiator if the broker-dealer industry heads toward that direction.
“Years ago, advisors differentiated by saying they used fee-based models versus commission models,” but broker-dealers have also adopted that model, Anderson notes.
Given how the fee-based versus commission-based models have evolved, Anderson posits: “Ten years from now, being a fiduciary will not be a differentiator. We will ultimately get there as a country.”