Here's to the Queen — and Other Fiduciaries

From England the U.S. inherited the concept of trusts and trusteeship. Trustees are fiduciaries, required to put the interests of the people they serve ahead of their own.

Being a fiduciary is hard, Even if you're a royal fiduciary.

For proof, look the lives of Elizabeth II, who recently visited Jamestown, Virginia, for the first time in fifty years, and her father, George VI.

Elizabeth must have been about 11 when her shy father learned that his life as minor royalty had been shattered by his older brother.

As the old Calypso ditty reported, "It was love, love, love alone/That caused King Edward to leave the throne."

Taking over for his abdicating brother Edward, George VI reigned during the horrors of World War II and presided over the dissolution of the British Empire. (He was the last Emperor of India.)

Not long after the war, Elizabeth had to follow in his footsteps, giving up any semblance of a normal "country gentry" life. She became a symbolic fiduciary for her people, and along the way she endured some "horrible years."

On Wall Street, being a fiduciary is so hard that brokers don't want to try it. Yesterday's Wall street Journal (subscription) explained:

What kind of legal protection should investors get when seeking advice from securities brokers? That issue is at the core of a controversy involving fee-based brokerage accounts -- where investors had an estimated $277 billion at year end.

The Securities and Exchange Commission last year put a new rule in place that had the effect of encouraging the use of fee-based accounts.


The SEC was aiming to reduce stock brokers' incentive to make unnecessary trades to generate commissions, so the commission said that stockbrokers overseeing fee-based accounts were now exempt from a "fiduciary duty" to clients when providing "incidental" advice tied to buying and selling securities. A fiduciary duty requires acting at all times in a client's best interest.

In a nutshell, that means brokers could give clients advice with less worry about later tangling with them in litigation.

But the Denver-based Financial Planning Association, which represents independent broker-dealers and registered investment advisers, cried foul. The FPA argued that stockbrokers were raking in the same fees as financial advisers for similar advisory work -- without having to meet the stiff legal standard they do.

In March, a federal appeals court struck down the SEC rule. The court said that the SEC lacked authority to create the rule to exempt certain broker-dealers from registering under the Investment Advisers Act of 1940. If the SEC doesn't file for a re-hearing, the ruling will go into effect on May 21.

What do you think? Should brokers be held to fiduciary standards even though, officially, they give only "incidental" advice?

"More than 90% of investors surveyed believe that the same investor protection rules should apply to both stockbrokers and financial planners when they offer the same kind of investment advice services," according to a study co-sponsored by a group representing registered advisers.

The survey also found that "fewer than one out of three U.S. investors correctly understand that the 'primary service' provided by stockbrokers is the buying and selling of stocks, mutual funds, bonds, etc. -- not investment advice."