Notwithstanding its recent regulatory focus in financial services, the concept of being a “fiduciary” long predates the Department of Labor’s proposed fiduciary rule. Not only because a fiduciary duty has applied to Registered Investment Advisers (RIAs) since/under the Investment Advisers Act of 1940, but also because the obligations of a fiduciary duty have existed under common law for centuries (and in other societies, for millenia) before. In fact, a fiduciary duty is what has always applied to special (advisory) relationships of trust and confidence. The primary issue is simply to determine when an advice relationship actually exists.
Accordingly, as the brokerage and annuity industries have increasingly trained their brokers and agents in more holistic advice, pursued advice-oriented education (e.g., CFP marks), and adjusted everything from their national advertising to their business cards to convey that their primary role is no longer just product sales but actual advice, it was arguably inevitable that regulators would eventually respond by applying a fiduciary duty to all those “advisor” brokers and annuity agents. As the Department of Labor ultimately did with its fiduciary rule.
Yet ironically, despite their ongoing transition into the business of financial advice, the financial product distribution industry and its representative associations – including FSI (independent broker-dealers), SIFMA (the securities industry), IRI (the annuity industry), and NAIFA (insurance and annuity agents) – have now prevailed in their 5th Circuit Appeal against the DoL’s fiduciary rule, by successfully arguing that, notwithstanding their advertising and the titles on their business cards, their brokers and annuity agents are not advisors at all, but mere salespeople who do not have a relationship of trust and confidence with their clients, for which their (commission-based) compensation is not in any way payment for the delivery of advice but merely for effecting a product sale. Even as they continued to lament to the public and the media that the DoL’s fiduciary rule would restrict their ability to give advice to consumers (the very advice relationship they explicitly denied providing to clients in their own court briefs!).
Nonetheless, while it remains to be seen whether the 5th Circuit Appeals decision will actually lead to vacating the rule, will lead the Department of Labor to try to walk back the rule, or whether the fact that last week the 10th Circuit Court of Appeals upheld the DoL fiduciary rule – potentially setting the stage of a showdown in the Supreme Court – the fact that the financial product distribution industry of broker-dealers and insurance and annuity agents continues to adopt “financial advice” in their advertising to the public, it seems only a matter of time before some fiduciary rule takes hold, whether from the Department of Labor, the SEC, or a growing number of states that are taking fiduciary rulemaking into their own hands to fill the void.
Yet at the same time, the fact that the product distribution industry was able to prevail by convincing the court that their brokers and annuity agents are “just” salespeople and not advisors does emphasize the fact that there is a role for salespeople to play in the financial services industry, as distinct from actual advisors, and long recognized with separate regulation (i.e., the Investment Advisers Act vs broker-dealer regulation under FINRA). Which ultimately raises the question of whether the real issue is not whether the Department of Labor (or the SEC) are the best to issue a uniform fiduciary regulatory framework for all investment advisers and broker-dealers (and annuity agents), but whether a uniform fiduciary rule is the right solution in the first place… or whether the better path is simply to allow salespeople and advisors to continue to co-exist, but with proper regulation of titles and advertising to ensure that consumers have clear disclosures not just with respect to the products they may purchase, but the very nature of the sales-versus-advice relationship they’re engaging in the first place!
source https://www.kitces.com/blog/dol-fiduciary-5th-circuit-appeals-court-ruling-financial-product-distribution-sales-advice-trust-confidence/?utm_source=rss&utm_medium=rss&utm_campaign=dol-fiduciary-5th-circuit-appeals-court-ruling-financial-product-distribution-sales-advice-trust-confidence
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