The SEC Outsourcing Rule and Our Failure as Fiduciaries

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Sometimes advisors fail as fiduciaries. Sometimes they fail spectacularly.

The process by which advisors select a turnkey asset management provider (TAMP) is the latest illustration of fiduciary failure, and the SEC has responded with ominous rulemaking that will have questionable value to our profession.

A good example of that failure is the use by advisors of high-fee mutual fund share classes when another share class with lower-fees is available. Not that long ago, advisors were regularly pocketing 12b-1 fees at the expense of their clients.

The practice was so pervasive the SEC went on the warpath to clean it up. It launched a months-long amnesty program that allowed offenders to give themselves up and initiated a wave of high-profile enforcement actions to punish scofflaws who didn’t take advantage of it.

Did it succeed in eradicating the practice? Hardly, but it eliminated many egregious cases and contained the practice by making examples of those who harmed their clients.

Why did the SEC need to take these actions? It was such an obvious breach of fiduciary duty to load a client’s portfolio with funds that harm the client and benefit the advisor.