Here’s an apt description of the financial services industry, borrowed from a reality-TV show title: “It’s complicated.”

In general, the part of the industry that concerns financial and insurance conference planners is the universe of registered reps and insurance agents who work for broker/dealers, either as independents or as captive agents. That is, salespeople who work on commission, and who insurance and financial services companies often motivate through incentive contests and engage through incentive conference attendance. In some states, and depending on the product being sold, these salespeople are held to a “suitability standard” when working with clients. Under this standard, selling a financial product because it is suitable for the client and also moves the salesperson one step closer to qualifying for an incentive conference is legal and legitimate.

In another realm—that of the registered investment advisory firm—it would not be legal. RIAs are held to a “fiduciary standard,” which means they are legally bound to put their clients’ financial interests above their own interests. Rather than working for commissions, RIAs are paid by client fees.

As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission was required to write a report on the merits of requiring everyone who provides personalized financial advice to consumers to be held to the same fiduciary standard of conduct when giving that advice. The report, which came out in January, said that, yes, a uniform fiduciary standard is appropriate.

So the already complicated industry is now in a phase—which some predict could take a year or more—of figuring out what that will mean. If there is a uniform fiduciary standard, what exactly would it require? What is the definition of “personalized financial advice”? Who would enforce the standard as applied to broker/dealers? What are the implications for your field force, which you and your company now engage, motivate, and educate by way of incentive conferences? Will today’s incentive qualifiers be tomorrow’s registered investment advisers, working on a fee-based model rather than a commission-based model? Will incentive contests still be relevant?

We asked Blaine Aikin, AIFA, CFA, CFP, president and CEO of fi360, to help us break down some of the issues involved. Aikin’s firm provides training programs, analytical tools, and support for all types of financial service providers, and awards the Accredited Investment Fiduciary and Accredited Investment Fiduciary Analyst professional designations. Aikin also has served as principal and chief investment officer of Allegiance Financial Advisors and as senior vice president and director of product development and management for PNC Advisors.

Financial & Insurance Meetings: Do you believe we are headed for a uniform fiduciary standard?
Blaine Aikin: Yes, I do, but not simply because of regulatory reform. Pressure has been building over the last 10 years or so for a fiduciary standard for securities brokers due to a migration to the asset management business model. In the insurance industry, we have seen a parallel push for suitability standards in the sale of fixed annuity products since the early 2000s. Although suitability requirements are not as stringent, they could be a precursor to higher standards over time.

However, threats by the new Republican majority in the House to deny the SEC sufficient resources to carry out its rulemaking and enforcement responsibilities effectively have made formal adoption of the fiduciary standard more difficult. This is likely to delay but not prevent implementation of the broader fiduciary standard for two reasons. First, the case for the fiduciary standard and for holding those who give advice accountable to serving investors’ best interests is simply too compelling to be ignored. Second, competitive forces are making voluntary adoption of the fiduciary standard a practical necessity.

Market volatility, trading scandals, and economic uncertainty are making investors even more wary. To counter this, and in light of the overall regulatory trend to greater disclosure of costs and conflicts, more and more financial service companies are preparing to operate in a much more transparent and less-conflicted manner by adopting the fiduciary standard to guide their business practices.

Financial & Insurance Meetings: How do you see the landscape shaking out if all are held to the fiduciary standard?
Aikin: Dodd-Frank greatly increased the likelihood that a fiduciary standard would be imposed on securities brokers, but it also preserved several current practices. For example, no matter how the SEC defines a uniform fiduciary standard, it cannot prohibit the receipt of commissions or the ability of a fiduciary adviser to act under other, lower standards after providing personalized investment advice.

Having said that, the new law encourages greater disclosure of products and conflicts of interest, so this could also mean a more clear distinction in marketing practices between financial advisers who act in a fiduciary capacity, and financial product salespeople who are accountable to the less rigorous, transaction-oriented fair-dealing standard. The advisory segment will continue to grow as the reach of the fiduciary standard expands.

Products evolve in response to demand and other prevailing trends. The current trends favor the development of more fee-based products while commission revenue—at least in the securities industry—is in a precipitous decline. Dodd-Frank made clear that commissions are not inherently at odds with the fiduciary standard. Even so, if you pay variable commissions that are built into products, there is an inherent conflict of interest since the adviser has an incentive to recommend the higher-paying product. A fiduciary must avoid or mitigate that conflict. If you don’t remove adviser compensation from the products altogether and apply an advisory fee at the account level, then you generally must make sure all products pay the same amount of compensation to the adviser, which pretty much defeats the sales incentive intent of commissions.

Financial & Insurance Meetings: What will happen to the ranks of commission-based salespeople who act in a non-fiduciary capacity? Is there still a place for sales incentive contests?
Aikin: While the number of transactional, non-fiduciary brokers and insurance agents is likely to decrease, these representatives will continue to be able to receive commissions so long as they do not offer personalized advice or exercise investment discretion.

Sales incentives, regardless of form, involve inherent conflicts of interest and are generally incompatible with the fiduciary duty to serve the exclusive best interests of clients. The problem with sales incentives today, compared to many years ago, is partly due to the professional adviser titles used today. Under the old caveat emptor, or buyer beware marketplace, where the customer clearly knew you were acting as a salesperson, this was understood and an accepted practice. Today, many salespeople use titles implying a position of trust and objectivity with regard to product recommendations. Even if we like to think we are acting objectively, subconsciously we may not be completely filtering out our own biases and motivations for certain product recommendations.

It is important to note that most advisers are dually registered, meaning that they are both RIAs and licensed securities representatives of broker/dealers. Therefore, there are some financial services people who only give advice as fiduciaries, some who only handle transactions without giving advice, and some who sometimes give advice as fiduciaries and at other times facilitate transactions without acting in a fiduciary capacity. Currently, a dually registered representative can switch from being a fiduciary at one moment to become a non-fiduciary for the same client at the next moment. This can certainly be confusing for investors to follow.

At some point there may be rules to restrict this so-called “hat-changing.” One way to do that is to require an adviser to remain a fiduciary at all times for the same client once they have established a fiduciary relationship. This is unlikely to happen anytime soon because there is more than enough on the table to be addressed before this contentious issue is tackled.

Having said all that, the simple answer is that there will continue to be a non-fiduciary side of the financial services business. This is an economical approach for do-it-yourself investors. Sophisticated investors may also seek specialized trading or execution services rather than personalized advice. Finally, fiduciary advisers may perform due diligence on products that are provided by brokerage and insurance representatives who are not fiduciaries. You can think of this as being analogous to the way doctors interact with pharmaceutical sales representatives.

Many brokers who provide advice go beyond the low-bar fair-dealing standard as a matter of conscience, but others don’t because they are not required to do so and because the prevailing sales culture provides ample temptations to cloud the conscience. Investment advisers acting as fiduciaries face structural and cultural impediments to giving advice that serves their own interests at the expense of their clients as well as regulatory and litigation risks if they do so. Granted, there is no such thing as a perfect law, and lawyers and doctors have also been sent to jail for violating their ethics codes. But training and striving for a culture that puts the client’s interests first helps reduce these problems.