“Fiduciary standard” is one of the most bandied-about phrases in the advisory community – most advisors are for it, but ideas on how to achieve that lofty standard can vary.
Case in point: Two years ago, a band of investment professionals and fiduciary experts formed the Committee of the Fiduciary Standard. But recently, some dissatisfied members of CFS broke away to form their own group, the Institute for the Fiduciary Standard.
Both groups seek to strengthen and expand the fiduciary standard as laid out in the Investment Advisers Act of 1940, which requires investment professionals to put their clients’ best interest first.
They part company, however, when it comes their views on how to go about operating and funding that effort. CFS is a private organization, relying mostly on founding members’ fund-raising efforts. It is relatively informal in its structure and doesn’t intend to exist indefinitely.
The newly formed IFC, on the other hand, is a non-profit entity and seeks to establish a larger and more consistent war chest via contributions from people and companies supporting its mission.
The head of CFS prefers not to operate under that model. “They want to be in a position to raise money from industry sources and that’s something we didn’t want to do,” says Harold Evensky, a principal of Evensky & Katz Wealth Management. “We want to stay completely independent. We speak for ourselves.”
Knut Rostad, leader of the breakaway IFC, believes a more permanent, better-funded group can accomplish more.
“While we’ve made progress advancing understanding of the fiduciary standard and its practical importance, there’s much left to do,” says Rostad in a statement. “We are in the midst of rule making in DOL and the SEC; misunderstandings abound about what fiduciary means. The Institute provides a permanent platform to build a full program of advocacy and education on this important public issue.”
Initial funding for the Institute was raised from its founding members.
You say tomato
In an interview, Rostad stressed that despite the split, the two groups are still guided by the same philosophy.“There’s no difference in view, mission and objectives.”
For his part, Evensky allows that Rostad’s model has its advantages. “Clearly without resources there are things we can’t do and it’s nice if somebody else does them.”
Indeed, this year TD Ameritrade Institutional signed on as a financial supporter of his committee. Evensky say his group will not accept such funds going forward. “We will not do that in the future.”
Founding members of the Institute for the Fiduciary Standard are Rostad, deputy chief compliance officer of Rembert Pendleton Jackson; Marion Asnes and James Patrick, both of Envestnet Philip Chao of Chao & Company; Maria Elena Lagomasino and Michael Zeuner of GenSpring Family Offices; and Kathleen McBride of the Institute for Private Investors.
Remaining members of the Committee of the Fiduciary Standard include Ron Rhoades, Roger Gibson, Ron Roge, Sherly Garrett, Blaine Aiken, Clark Blackman, Deena Katz, Kristina Fausti and Gene Dietrich.
Roger Ibbotson, a highly regarded capital markets scholar and a leading expert on asset allocation, will serve on the newly formed Institute’s board of advisors.
“The Institute for the Fiduciary Standard is well positioned to encourage long-needed changes in industry practice that will strengthen our markets and benefit investors,” says Ibbotson, who teaches at the Yale School of Management, in a statement. “Effective education on fiduciary responsibility is urgently needed.”
Coming out party
The Institute will sponsor its first event on Friday, Sept. 9, in Washington – a panel discussion entitled “Crafting Effective Disclosure.” Members will include Professors Daylian Cain from Yale University and Arthur Laby from Rutgers University.
“How SEC and DOL rule-making handles requirements around disclosure will have critical repercussions for investors,” says Rostad. “The panel will provide important practical guidance to regulators and the industry.”
That members bonded by a passion for creating an industry of accountable financial advisors formed two sect should come as no surprise, he adds.
“We’re dealing with a group of independent advisors; guess what: they have independent views.”