Research

Most Recent

What Investors Can Learn About An Advisor’s Conflicts in Form ADV: ‘But Were Not Sure How to Ask’

by Knut A. Rostad and Darren M. Fogarty, Published on September 12, 2016

RIAs DNA of objective investment advice is embedded in the Advisers Act of 1940. What’s often over-looked, however, are differences among RIAs on measures in the Adviser’s Form ADV that serve as ‘fiduciary indicators’. The research identifies some of these indicators and explores some of these differences.

What is “Good Advice”?

by Knut A. Rostad, Published on May 23, 2016

Questions of good advice and financial planning are timely. 2016 will initiate the DOL COI Rule era, 76 years after the Advisers Act of 1940, and 47 years since the “birth” of financial planning. And timeless. The force behind the DOL rule reflects the “shared mission” and question that attracted the financial planning founders in 1969: Can advice replace sales as the industry “driving force”?

Fiduciary Duties Advanced in 2015; 2016 Will Reveal How Much These Gains Are Secured – Or Not

by Knut A. Rostad and Darren M. Fogarty, Published on January 28, 2016

Winning the fiduciary “Debate” in 2015 was vital… and insufficient. The future of advice depends on how Fiduciary Duties and “Best Interest” are defined by regulators and advisors. History, law, research and common sense suggest that a stringent definition is necessary.

Conflicts of Interest and the Duty of Loyalty at the Securities and Exchange Commission

by Knut A. Rostad, Published on September 17, 2015

Recently, Securities and Exchange Commission (SEC) Chair Mary Jo White said she supported the SEC moving ahead with a uniform standard for broker-dealers and investment advisers. Knut Rostad’s paper is published here in the September issue of The Investment Lawyer.

Investment Advisers Act 75th Anniversary – Statements from Industry Leaders and Experts

by Industry Leaders Arthur Levitt and David Tittsworth, Published on September 8, 2015

The Investment Adviser Association (IAA) asked a number of industry professionals, regulators, and other experts to share their views on the value the Investment Advisers Act has brought, and also asked them to forecast what lies ahead for the Act and its founding principle, the fiduciary duty. The Institute includes two responses, one from former SEC Chairman, Arthur Levitt, and the other from former IAA CEO, David Tittsworth, because they focus sharply on the challenge confronting the SEC regarding fiduciary duty and why this highest standard matters to investors. Below are the transcriptions of their video responses.

SEC Commissioners Luis A. Aguilar and Daniel M. Gallagher on Fiduciary Duty

by Knut A. Rostad and Darren M. Fogarty, Published on September 8, 2015

SEC Commissioners Luis Aguilar and Daniel Gallagher have announced they will leave the SEC when their replacements are selected.1 Commissioner Aguilar has served seven years and Commissioner Gallagher almost four. The Commissioners depart at a time – in the midst of recent statements of SEC Chair White on the status of rulemaking at the SEC and the DOL proceeding with the Conflict of Interest Rule — of unprecedented focus on fiduciary duties. This focus reveals sharply different visions. The commissioners’ departure is an appropriate time to assess their views.

Institute for the Fiduciary Standard/WealthManagement.com September 2015 DOL Conflict of Interest Survey

by the Institute for the Fiduciary Standard and WealthManagement.com, Published on September 2015

DOL Conflict of Interest Survey

Statement of Knut A. Rostad On “Best Interest” and SIFMA’s “Proposed Best Interest of the Customer Standard For Broker-Dealers”

by Knut A. Rostad, Published on June 9, 2015

The “Best Interest” standard is central to the regulation of advisers and brokers. It’s key to the DOL COI proposed rule and recent SEC statements and decisions. Now, a Securities Industry Financial and Markets Association (SIFMA) statement discusses conflicts of interest, disclosure and fee transparency. Despite its obvious importance, federal policy makers and regulators still have not affirmed or promulgated a view of the “Best Interest” standard as drawn from the Advisers Act and common law.

Conflicts of Interest and the Duty of Loyalty at the Securities & Exchange Commission

by Knut A. Rostad, Published on April 6, 2015

SEC Chair Mary Jo White’s recent statement that the SEC should proceed with rule-making on a uniform fiduciary standard focuses attention on what such a rule may entail. Recent SEC decisions, statements from senior staff and commissioners and statements from former SEC staff and commissioners provide bold lines of a clear picture of the SEC’s view of the duty of loyalty. These bold lines suggest traditional views that conflicts of interest are inherently harmful and should be avoided have altered. Instead they depict a new and benign view of conflicts. A view that holds that conflicts are routine and acceptable — not inherently inconsistent with providing objective advice.

Key Principles for Fiduciary Best Practices and an Emerging Profession

by Knut A. Rostad, Published on September 10, 2014

Fiduciary law is complex in its nuances and structures; fiduciary principles are not so complex. Instead they reflect the wisdom of Emerson, who noted, “Nothing is more simple than greatness; indeed, to be simple is to be great.” So it is with principles on which fiduciary best practices and an emerging advisory profession must rest. This paper notes the attributes of character, suggests relevant operating principles or premises for best practices based on these attributes, why these principles matter, and how they starkly differ from principles underlying common brokerage sales practices aggressively advocated by brokerage lobbyists. Throughout, the simplicity of these principles and their meaning to investors stand out.

Professional and Personal Financial Planning

by Jeffrey W. McClure, Published on May 16, 2014

An excellent paper on the origins, meaning and importance of professions, and the status of financial planning as a profession.

Fiduciary Institute to Craft Fiduciary Best Practices that Investors Want

Published on May 13, 2014

The Institute for the Fiduciary Standard today announced the formation of
a Best Practices Board to craft fiduciary best practices for investment and financial advisors.

Six Core Fiduciary Duties for Financial Advisors

by Knut Rostad, Published on September 9, 2013

The Six Core Fiduciary Duties embody the major elements of fiduciary responsibility under the Advisers Act of 1940.

SEC release offers little medicine to quell conflict-of-interest “virus’

by Knut A. Rostad, Published on June 11, 2013

Note: this op-ed, written by Institute for the Fiduciary Standard President Knut Rostad, is published on InvestmentNews.com.

Fiduciary Reference – Analysis of Investment Fiduciary Issues

by Knut A. Rostad, Published on April 16, 2013

The SEC March 1 Release* assumptions about a possible uniform fiduciary standard and the duty of loyalty sharply restrict when fiduciary duties are applied. If these assumptions are adopted in rulemaking, fiduciary duties would effectively be removed for brokers and advisers giving investment advice to retail investors.

The Fiduciary Obligations of Financial Advisors Under the Law of Agency

by Robert H. Sitkoff, Published on March 19, 2013

Whether a financial advisor is an “investment advisor” or a “broker” (or neither) under the federal securities laws, an advisor may be an agent under the common law of agency. In such situations, for example the situation in which the financial advisor has discretionary trading authority over a client’s account, the advisor is a fiduciary who is subject to the fiduciary duties of loyalty, care, and a host of subsidiary rules.

Selling Advice And Creating Expectations: Why Brokers Should Be Fiduciaries

by Arthur B. Laby, Published on December 2012

While both investment advisers and broker-dealers provide advice about securities, only advisers are subject to a fiduciary standard to act in their clients’ best interest. Brokers, meanwhile, are subject to a less strict suitability standard. Because investors reasonably expect that brokers will in fact operate in a fiduciary capacity, the SEC should impose a fiduciary duty on brokers that give investment advice.

Why Capitalism Has an Image Problem

by Charles Murray, Published on July 2012

Capitalism has played an important role in world history generally and in American history in particular. Nevertheless, today many Americans view capitalism with suspicion or even hostility. What’s needed is a remaking of the case for capitalism, which itself requires a restatement of capitalism’s old truths.

The Scandal Behind the New Financial Scandals

by Francesco Guerrera, Published on July 2012

Recent scandals, such as the controvery over Libor and the failure of the brokerage firm Peregrine Financial Group, underscore the severe problems within the financial industry. Such controversies have led savers to withdraw hundreds of billions of dollars from equity mutual funds. Are these events the new normal or are we at a breaking point?

A Discussion of Some of the Differences Between the Regulatory Requirements of Brokers and RIAs

by Knut A. Rostad, Published on April 11, 2012

A discussion of the differences in the standards of investment advisers and brokers is essential amidst the calls for “harmonizing” the two. This paper seeks to highlight how these two standards differ in terms of the legal requirements and duties imposed on advisers and brokers.

Rulemaking Re: Brokers, Dealer and Investment Advisers

by Knut A. Rostad, Published on April 9, 2012

On July 14, 2011 SIFMA submitted comments to the SEC on a proposed framework for establishing a uniform fiduciary standard of conduct for broker-dealers. SIFMA’s proposal departs from the fiduciary standard as set forth under the Advisers Act of 1940 and, if adopted, would be particularly harmful to retail investors.

How to Choose a Financial Planner

by Allan Roth, Published on March 2012

Knowing how your financial advisor makes money can help you, the consumer, make a well-informed decision. This article attempts to arm consumers with tools they can use to get the best money advice possible.

Mutual Fund Performance Advertising: Inherently and Materially Misleading?

by Alan R. Palmiter & Ahmed E. Taha, Published on December 30, 2011

Despite the fact that mutual funds’ past performance is not a good predictor of future returns, mutual fund companies routinely advertise the returns of their best funds. While the SEC requires certain warnings be attached to performance advertisements, current regulation is grossly inadequate. At least, the SEC should strengthen its currently-mandated warnings. Better yet, it could reinstate its prohibition of fund performance advertising altogether.

On the Regulation of Investment Advisory Services: Where do we go from here?

by James J. Angel, Published on October 31, 2011

On July 14, 2011 SIFMA submitted comments to the SEC on a proposed framework for establishing a uniform fiduciary standard of conduct for broker-dealers. SIFMA’s proposal departs from the fiduciary standard as set forth under the Advisers Act of 1940 and, if adopted, would be particularly harmful to retail investors.

Fiduciary Law in the 21st Century

by Tamar Frankel, Published on May 2011

This paper was presented as part of a conference on fiduciary law at Boston University on October 29, 2010. The conference was held in honor of Tamar Frankel and her contributions to the field. In the article, the author discusses the components of the fiduciary relationship, the management of risk in the fiduciary relationship, and the cost of enforcement.

The Specific Fiduciary Duties of Investment Advisers

by Ron A. Rhoades, Published on April 12, 2011

Contrary to what some of the comments received by the DOL/EBSA suggest, fiduciary duties are neither too “ill-defined” nor “vague” to be applied to investment advisory activities. Such duties have been applied to other professionals for centuries. Additionally, there is a significant body of case law applying fiduciary duties of due care, loyalty, and good faith upon the activities of investment advisers (both at the federal and state level).

Comments on Definition of Fiduciary Proposed Rule

by Knut A. Rostad, Published on April 12, 2011

Disclosures and client consent are insufficient – by themselves – to satisfy the fiduciary standard. Investors must be able to rely on and have confidence in the expertise of their advisor. This can only be accomplished by applying a standard that prohibits all conflicts of interest.

Proposed Rule, Definition of the Term “Fiduciary”

by Ron A. Rhoades, Published on April 11, 2011

Certain comments made by Kenneth E. Bentsen, Jr. of SIFMA before the U.S. Department of Labor hearing on the proposed definition of fiduciary regulation were either misleading and/or not relevant to the issues under consideration. The DOL should carefully scrutinize the (flawed) arguments of those organizations opposed to a bona fide fiduciary standard of conduct.

The Regulation of Brokers, Dealers, Advisors and Financial Planners

by Tamar Frankel, Published on 2010-11

The SEC, authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act, should impose a fiduciary duty on all brokers (and similar financial professionals) who suggest specific securities to clients. The current legal regime must be replaced with a fiduciary model in order to adequately protect the interests of investors.

An Investment Adviser’s Fiduciary Duty

by Lorna A. Schnase, Published on August 1, 2010

An investment adviser’s fiduciary duty derives primarily from common law and federal statutory law. There are two basic duties, those of care and loyalty. Some authorities list additional duties such as a duty of obedience, a duty to act in good faith, and a duty of disclosure.

Dodd-Frank Act, Section 913: Study and Rulemaking Regarding Obligations of Brokers, Dealers, and Investment Advisers

Published on July 21, 2010

Rulemaking – The Commission may commence a rule-making, as necessary or appropriate in the public interest and for the protection of retail customers, to address the legal or regulatory standards of care for brokers, dealers, investment advisers, persons associated with brokers or dealers, and persons associated with investment advisers for providing personalized investment advice about securities to retail customers.

Testimony of Arthur Levitt, Jr. Senate Banking Committee

by Arthur Levitt, Published on October 2008

New SEC Rule helps investors sort out brokers from investment advisers, requires a brokerage account disclosure, “Our interests may not be the same as yours”

by Knut A. Rostad, Published on July 20, 2005

Many people have asked about the origins of the “Butcher versus Dietitian” white board video recently popularized by Hightower Advisors and Tony Robbins. Its an excellent video, no doubt. Full disclosure, the first rendition of this story line to explain the differences between a broker and investment adviser in recent times (that I am aware of) was actually ten years ago when Harold Evensky and I collaborated on the idea in a different format and medium. Click the link above to see the PSA and news release. Knut

Institute Research Associate – Darren Fogarty

Darren Fogarty is an undergraduate at the University of North Carolina at Greensboro (UNCG), where he studies Economics and Sustainability Studies. He also recently graduated from a summer program studying International Relations at Georgetown University.

Darren also works at UNCG’s writing center as a consultant, where he aids students and alumni in their writing processes. He is passionate about the work he does for the Institute, and is dedicated to promoting and preserving the principles which uphold our capital markets.