On Tuesday, Barry Glassman of Glassman Wealth was invited by Bernie Clark, the head of Schwab Advisor Services to meet with several members of Congress during an event hosted by the Investment Adviser Association.
His mission was to learn more about the sentiments on Capitol Hill of imposing a Uniform Standard of Care and Rule Harmonization for broker/dealers and RIAs, and convey to them what this would mean for the RIA industry and small businesses like his.
Mr. Glassman met with Congressman Scott Garrett, who chairs the House Financial Services Subcommittee on Capital Markets Congressman Jeb Hensarling, Chairman of the House Financial Services Committee; and Senator Mike Crapo, the Senate Banking Committees top-ranking Republican and a senior member of the Senate Finance Committee.
Glassman said he learned a lot, but was struck most to learn that there is a behind-the-scenes war going on over semantics that can have an enormous impact on RIAs.
With the passing of the Dodd-Frank Act and the completion of the Section 913 study, the SEC has paved the way to adopt a uniform fiduciary standard for broker/dealers and investment advisors. To put it bluntly, there's no feasible way for brokers to uphold the same fiduciary standard to which I and other fee-only advisors are held. For them to come under the fiduciary standard as it currently exists, their businesses would have to split up into so many micro pieces that it would be disastrous for them.
The alternative, as it is being proposed, is for the very meaning of the fiduciary standard to change. Rather than broker/dealers being required to do the right thing for the client, instead, RIAs and brokers would become subject to a uniform standard that would be rules-based, borrowing heavily from current broker-dealer requirements. The IAA and others are sounding the alarm that this could weaken the current obligation of RIAs to act in the best interest of their clients. The sad fact is that watering down the fiduciary standard will not provide additional protection for the investor.
The SEC is also looking at whether to link investment advisors and brokers by harmonizing our rules, essentially making us all part of the same rules-based system such as that under FINRA. Any new rules relating to licensing, continuing education, supervision, and books and records would change the very way that I and other investment advisors communicate with our clients and conduct our businesses. This is an area that I feel very passionate about. I left the broker/dealer model and opened my firm as a fee-only advisor so that I could communicate with my clients in a way that better serves them. In the end, my clients are not better served if investment advisors must supplicate to FINRA-like rules.
There are several important things that I was made aware of during this day:
First, brokers are pushing their own agenda in this debate on Capitol Hill. They would love for investment advisors to be held to their rules as we have a competitive advantage. But Congress is skeptical they understand that the RIA space is the fastest growing area in the financial industry. As brokers continue to lose advisors, clients and assets, it didn't surprise them that brokerage industry would want to slow down the bleeding with a tourniquet designed to choke the RIA industry.
Second, Charles Schwab is spending a great deal of time, energy and money advocating for investment advisors to have their own voice. They realize that the stakes are higher for RIAs and want to help us shape the outcome for our industry.
Last, I was not aware of how much work the Investment Adviser Association does on our behalf. I was so impressed that by the end of the day, I had joined as a member.
At the end of the day, I felt like I made a difference. By having frank discussions with these legislators, they saw me not just as an investment advisor, but as a small business owner facing daunting challenges that additional regulations and compliance would place on me. And that by applying these rules to RIAs, there is no evidence to suggest that investors would be better off.
My hope is that all RIAs rally around the great efforts that Schwab, the IAA and others are doing to protect our industry. Schwab just completed an important advisor survey giving RIAs a chance to weigh in on the impact that potential SEC regulations will have on their businesses. They plan to use these results in a comment letter to the SEC in July.
I also urge you to join the IAA, or visit their website at
Mr. Glassman owns
