SEC Staff to Investment Advisors: Fiduciary is “Extraneous”

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The Supreme Court held in 1963 the fiduciary standard is the bedrock of the Investment Advisers Act of 1940. Now, however, the SEC staff has issued a statement saying to investment advisers that their fiduciary status is “extraneous.”

This opinion is stunning but unsurprising. For more than 20 years, broker-dealers have advertised that they provide ”trusted advice” (read: fiduciary) but have vigorously opposed being held to a fiduciary standard. Indeed, they have erased the line between fiduciary advice and brokerage trading or product distribution.

The result has been a bamboozled and befuddled marketplace that financial planner Dan Moisand called a “freak show” in 2018.

This latest SEC staff intervention effectively said, ”Forget the Supreme Court and prior SEC opinions. We have a better idea.” The idea is that, since broker-dealers reject the higher fiduciary standard, investment advisers must do likewise. They must tell investors they meet the lower broker-dealer conduct standard.

If SEC’s dictum were a piece of congressional legislation, it could be called ”The Equity in Conduct Standards Act, 2022.”

The SEC chair and its commissioners today are the most fiduciary-centric in the last 25 years. Yet, on March 30, the staff said the word fiduciary is out on Form CRS. CRS is a two-page disclosure that is meant to help investors tell the difference between brokers and advisers.