“CFA credential implies a standard of care not always upheld,” says Forbes opinion piece

Edward Siedle questions the integrity of some CFA charterholders in “Investors Misled By Brokers Masquerading As Fiduciaries: CFA credential implies a standard of care not always upheld, an August 9 “Expert View” on Forbes.com. Siedle is a former SEC attorney and the president of Benchmark Financial Services.

While I think Siedle overstates his case, he raises an interesting point.

Suitability standard vs. fiduciary duty

His basic argument: If CFA charterholders work for broker-dealers, they’re bound to a standard of suitability, rather than fiduciary duty. This is a conflict I hadn’t thought about before reading his article.

Apparently many brokerage firms handle the potential conflict by forbidding use of the CFA credential by those who use the suitability standard.

Siedle quotes Robert Dannhauser, the CFA Institute’s director of advocacy outreach. Dannhauser says, “…in many such instances, the firms do not allow CFA charterholders to display the CFA designation after their name on business cards or other publicly available material, so that clients do not perceive any different standard than what the firm has adopted for all of its employees. This hopefully offers clients a clearer view of what they’re getting. The key is for practitioners to not represent themselves as one thing but offer a different level of service than might otherwise be expected given that representation.”

Siedle counters by saying, “However, in my experience, many brokers do use their CFA status in marketing themselves to investors–especially to institutional and high-net-worth investors who are most likely to be familiar with the designation.” Moreover, “Unfortunately, it’s only after the retail broker dressed up like a fiduciary screws up that the investor might discover that he and his employer do not accept a fiduciary standard of duty.” I don’t know the details of the case that Siedle uses as an example.

Siedle seems to imply that every charterholder who works for a company such as Bank of America works for a broker-dealer. This is an exaggeration. The companies he names are not pure broker-dealers. Many of the charterholders at these firms may work for registered investment advisors that explicitly require them to act as fiduciaries.

Challenge for the CFA Institute’s ethics curriculum

Still, I’d be curious to know if the conflict between fiduciary duty and the suitability standard comes up in the CFA Institute’s ethics curriculum. If not, it sounds like a good topic for the future. As a CFA charterholder myself, I feel confident that the CFA Institute will tackle this issue.

11 replies
  1. Roger Wohlner
    Roger Wohlner says:

    Susan an interesting conundrum. I respect the CFA exam process and how tough it is to obtain the designation. To me it implies a level of knowledge and skill. As you know I am all about the Fiduciary standard and believe that EVERYONE who advises the public should be held to it. If this ever comes to pass (which I highly doubt) then by default the CFAs providing input to investments sold to the public will have to adhere to that standard. Currently I no more think of CFAs working for brokerage firms as fiduciaries than I do CFPs in the same position, which is not at all. Suitability to me is no standard, but that is another discussion.

  2. Susan Weiner, CFA
    Susan Weiner, CFA says:

    Roger, I also like the fiduciary standard. Based on the quote from the CFA Institute director, I think he’d agree with you.I’d like to see the CFA Institute take up this issue in their ethics curriculum, if they don’t do so already.

  3. M. Chad Holland, CFA
    M. Chad Holland, CFA says:

    I’m sorry, but did anyone take note of the fact that the author is the president of an RIA? I work for Merrill and the bulk of my business consists of providing discretionary PM to HNW individuals and institutions, which requires that I act as a fiduciary. As to the rest, I do not receive “kick backs” from managers I recommend to non-profits. Sounds like sour grapes to me.

  4. Susan Weiner CFA
    Susan Weiner CFA says:

    Chad, I’m curious, are there aspects of your role at Merrill in which you’re not allowed to act as a fiduciary?

    Thank you for sharing your experience as a CFA charterholder working for Merrill!

  5. Andres Frates
    Andres Frates says:

    We stumbled over here from a different website and thought I may as well check things out. I like what I see so now i’m following you. Look forward to looking at your web page again.

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