Regardless of whether the SEC eventually broadens fiduciary responsibility to include all providers of financial advice, Washington is a couple of steps behind the marketplace in demanding a fiduciary standard.
The Securities and Exchange Commission's mandate to study the fiduciary issue, of course, is one outcome of the House-Senate conference that produced a compromise financial-reform bill. But the committee's nod to the SEC did little more than acknowledge an idea that has already taken hold among investors: that all financial advisers should follow the same standard of client-focused care.

That sentiment came through clearly in research conducted by my firm, in which we polled more than 1,000 mass-affluent investors and more than 500 advisers, across all channels, on the topic of adviser responsibility.

We learned that alignment with the interests of clients is an idea whose time has come. What's more, fiduciary responsibility is a coming wave that will build no matter what legislators and regulators do.

For advisers, therein lies the opportunity. Clients think that advisers should place clients' best interests first — and they will reward advisers who do so with their loyalty and their business.

One of our poll's key findings is that advisers should look at heightened standards of care regardless of how hot a topic the fiduciary standard is. After two years of economic and market upheaval, we found that while the financial services industry has taken a big reputational hit, relationships between individual advisers and their clients are strong.

That may be counterintuitive, but large majorities of advised investors agree with the statements that over the past 18 months, “my adviser always acted with my best interests at heart,” and “the value I have received from my adviser is more than worth the cost.” Many also said that over the past two years, their portfolio has done better than most of their acquaintances'.

Still, advisers and investors alike agree that investors are more cynical about the financial services industry than ever.

Compounding the challenge is that given industry consolidation and the growth of the independent channel, fewer advisers are operating within the support of established and trusted firm “brand attributes.” The powerful implication of this is that advisers need to develop their own brand attributes.

In that context, for every adviser, demonstrating a clear and abiding alignment with investor interests has become more urgent than ever.

Not surprisingly, most investors said that they aren't familiar with the fiduciary issue per se. But that doesn't mean that advisory responsibility isn't at the top of people's minds.

Investors, in fact, cited damage to personal financial security, a loss of trust in advisers generally and growing investor empowerment as significant reasons why adviser responsibility is under such close scrutiny. Most advised investors said that their expectations for advisory services have increased.

An overwhelming majority of the investors polled said that they would support a regulation holding all advisers to the same service standard. Most said that a universal fiduciary standard would increase their confidence in the value of an advisory relationship.

But here is where the opportunity really comes to the fore: Most investors also think that fiduciary responsibility can't be legislated — that “you must rely on the adviser's individual integrity.”

Investors aren't waiting for new regulation. And they don't think that it is the only meaningful response to the issue of advisory responsibility.

Fundamentally, investors think that the character of the day-to-day interaction between adviser and client carries far more weight than any regulation in encouraging confidence and trust. Every adviser can act on that, no matter what their regulatory context.

Just as clients aren't waiting on the regulators to take up the fiduciary cause, neither should advisers.

A great way to showcase your client commitment is to set down, on paper, your own take on your professional responsibility. Then share your statement with clients.

We found that most advisers haven't developed or discussed with clients any such “code of conduct” beyond what a fiduciary standard requires. In fact, relatively few advised investors said that their adviser has ever formally explained their fiduciary responsibility to them.

About three-quarters of advised investors, however, said that they would have more confidence in an adviser who offered a statement of their commitment to clients specifying how the adviser worked.

Investors also wanted more-transparent communications about fees and compensation.

Fewer than half of advised investors said that their adviser is very clear on how he or she is compensated. Most agree that advisers shouldn't receive hidden incentives to choose one investment over another.

But most also agree that they are unable to assess whether their adviser gets such incentives.

Belief that advisory costs are opaque might even be inhibiting people from seeking you out. Among unadvised investors, advisers are considered less likely to be open about fees, expenses and “what they are doing for the money” than physicians, contractors, real estate agents and auto mechanics.

When it comes to costs, there is a lot getting lost in translation. It is time to close the gap as part of a much bigger trust-building exercise between adviser and client.

The fiduciary wave is coming.

Clients, though battered, still trust their advisers. But trust has been shaken.

Clients are telling us, in no uncertain terms, how it can be strengthened. And there is no reason to wait for the SEC to set the terms of engagement.

Every adviser and firm has a chance to reinforce loyalty and build business by resetting the client conversation and advisory process to signal strongly, at every turn, an unshakable commitment to every client's best interests.

That is the fiduciary opportunity. Will you seize it?

Judson Bergman is founder, chairman and chief executive of Envestnet, which provides investment solutions and practice-management technology for advisers.

July 2010 — This column is provided by the Financial Planning Association® (FPA®) of ___________, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning.  FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process.  Please credit FPA of ___________ if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.