Driving Progress Toward Reg BI Implementation – And Away from a Patchwork Fiduciary Approach

• By Dale Brown, President & CEO, Financial Services Institute (FSI)

In July, we submitted a letter in response to the Massachusetts Secretary of the Commonwealth’s request for comment on a fiduciary standard of conduct for advisors and firms in that state. As we have said many times, a state-by-state approach to fiduciary standards would create a confusing and counter-productive regulatory patchwork that would severely impede advisors’ ability to provide guidance to investors – and the Massachusetts proposal provides perhaps the best evidence yet as to why.

Among other new measures, the proposal would create a presumption that advisors had breached their duty to clients in cases where the advisor recommended an investment or strategy that was not the “best of the reasonably available options” for the client.

This sounds like an admirable goal, since advisors’ goal is to always make the best recommendation possible based on available information.

The first problem, of course, is that it is impossible to determine the “best available” investment option without the benefit of hindsight. Since no one can predict investment performance with 100% certainty, it is also impossible to consistently identify the “best available” investment option.

The second problem is that the proposal does not provide clear standards for compliance. It leaves open key questions such as who will determine what the “best” recommendation should have been given the information available at the time, or what standards that person or office would use to make that judgement.

With its overly ambitious approach to enforcing a “best possible recommendation” requirement, the Massachusetts proposal would deviate drastically from other fiduciary proposals and make it nearly impossible for advisors to fulfill their crucial function of guiding investors – ironically making it more difficult for Massachusetts clients to obtain advice that serves their best interests.

FSI firmly believes that Reg BI represents a better approach to placing clients’ best interests first and foremost – and we are backing up this belief with action. While state fiduciary proposals unfortunately continue to create new hurdles in the drive to establish a common standard of care, FSI and our members are proactively working to build momentum in implementing a better approach under Reg BI.

Contact FSI at advocacy@financialservices.org to see how you too can become a grassroots advocate in your home state.