In our industry, there is never a shortage of debate on the areas that affect the sale and delivery of financial advice to investors
In our industry, there is never a shortage of debate on the areas that affect the sale and delivery of financial advice to investors. Case in point: the InvestmentNews story “TD's Bradley: Broker or adviser — choose one” (Sept. 27).
After some heated commentary and mixed reaction from financial advisers regarding this story, I want to take the opportunity to expand upon two important issues that advisers face: the application of the fiduciary standard of care, and fee-based and commissionable adviser compensation.
The article, though thought-provoking, combined these issues into one story line; we think they are separate issues.
Let me start by clarifying that the advisory and brokerage business models each offer investors valuable and distinct services. The relative importance of the services varies depending on an investor's needs, situation and objectives.
The issue that has come to the forefront is whether it makes sense for the adviser to operate under the two different business models when serving one client. My opinion, based on the many years that I have been working with advisers, is that it serves the interest of the investor best if the financial professional chooses one hat — either adviser or sales representative — when advising the same client, and sticks with it.
Wearing two hats with the same client can be awkward for the adviser and has the potential to confuse the client as to whether a fiduciary relationship exists between them.
UP TO THE CLIENT
The other issue addressed in the article involves adviser compensation. This is a separate issue, apart from the fiduciary standard.
In fact, the fiduciary standard of conduct doesn't prohibit commission-based compensation. Although potential conflicts of interest may exist in any type of fee or commission structure, a commission-based structure has the potential for greater conflicts of interest because of the incentive to engage in transactions.
Ultimately, these issues are all about the individual investor. It should be up to the client to decide how he or she wants to pay for financial advice and services.
Preserving consumer choice is seminal to this discussion. Unfortunately, due to the complex regulatory regime concerning the sale of investment products and the delivery of investment advice, it has become extremely difficult for investors to understand the legal relationship that they have with their brokers or advisers.
POWER TO HARMONIZE
The good news is that under the recently passed Dodd-Frank Act, the Securities and Exchange Commission and other regulators have the opportunity to resolve this issue. The new law specifically has given the SEC the power to harmonize the rules that govern registered investment advisers and broker-dealers providing retail investment advice on securities without watering down the RIA fiduciary standard and without disallowing commissions under a fiduciary model.
As an industry, we have a once-in-a-generation opportunity to reform the securities laws to ensure that the best interests of investors are protected while providing bright-line rules for industry participants to follow.
In that spirit, we encourage continued discussion and debate on this issue and continued involvement with the SEC and other regulators that are modernizing securities rules governing the provision of investment advice to retail investors, so that investors can make informed choices.
Tom Bradley is president and chief executive of TD Ameritrade Institutional.
