A prominent industry player argues why the fiduciary standard and suitability standard can successfully co-exist. But before advisors operating under the latter standard jump for joy it’s important to understand why.
Cary List, CEO of the Financial Planning Standards Council
took time out of his busy schedule midweek to explain his organization’s views on this thorny subject, one that’s so contentious even U.S. President Barack Obama
has weighed-in on the matter. When the leader of the world’s most powerful country wades into the conversation you know it’s an issue that voters care about.
“To provide a one line or one sentence answer would continue to perpetuate the notion that there is a simple solution by changing the standard from ‘suitability’ to ‘fiduciary,’” says List. “In my estimation, such a change without addressing the root issues would not solve anything.”
SROs, regulators, investor protection advocates, you name it; there’s tremendous interest industry-wide in the fiduciary standard discussion.
But before anyone puts out the “For Sale” sign on their book of business it’s important that advisors of all types understand what the FPSC means by a fiduciary standard.
First, and foremost, List believes the term “fiduciary standard” is problematic, preferring “professional standard” when describing the tenets of an advisor/financial planner, which are as follows:
1) Put the client’s interest ahead of all other interests;
2) Possess the necessary knowledge, skills and abilities to serve the client’s best interests and act with the appropriate care, skill and prudence of a professional in the provision of advice;
3) Fully disclose all material facts, including real or potential conflicts of interest;
4) Avoid conflicts of interest, where possible; and
5) Manage, in the client’s interest, unavoidable conflict of interests.
When it comes to a suitability standard List is perfectly clear that the tenets from above which apply to professionals, whether we’re talking about an accountant, lawyer or financial planner, do not
apply to others within the financial services industry.
List uses the tax preparation business to illustrate how the two standards coexist in other industries.
“You can go to H&R block and get your tax returns prepared by an individual who has done some basic training, but if they are not a CPA, you know that they are not accountable to a professional standard, but they’ll likely be much cheaper,” says List.
“You also likely would not ask that tax preparer to provide any substantial tax advice, because you know they are probably not qualified to give it, and they have no professional duty to you to give you proper advice. If you went to a CPA, you would likely pay more but you know your CPA is being held to a different standard. The two can and do coexist in virtually every industry.”
At the end of the day the FPSC wants what’s best for consumers, the people who pay the fees and commissions that CFPs earn. As part of what’s best for consumers the FPSC is of the opinion that the various titles used by the industry need to be properly aligned with the proficiency and skill levels that accompany those titles.
“The two standards can coexist, but ONLY if the titles used made it clear that one title meant you are dealing with a financial professional and the other title meant you are dealing with an individual who is licensed to sell you and provide advice related to the products they are selling you, but who are not held to a professional standard.”
Is a dual-standard existence as easy as your ABCs? Probably not, but it’s a good place to start.