The distinction between the suitability standard under FINRA and the fiduciary responsibility under the sec may sound like much ado about nothing. But that's hardly the case.

Dodd-Frank authorized the SEC to require brokers to adopt the same fiduciary standard of care that applies to investment advisors. And while the SEC has not done so yet, it feels like a unified fiduciary standard of some type is just around the corner.

Indeed, SEC Commissioner Elisse Walter referred to the idea of a uniform fiduciary standard as a "gold standard" last month at a FINRA conference.

So what's the effect on bank advisors? First, there is a broad consensus that much of the burden of this change will fall on the FAs. "There's no way around it," says Steve Dowden, CEO of Invest Financial, a broker dealer in the bank channel. "It will result in "more time training, more time documenting meetings and conversations, deeper and perhaps more frequent compliance audits and reviews," he said.

That would be unwelcome news as FAs are getting close to their "breaking point with the compliance burden," noted Judy Payuk, chief compliance officer of St. Louis-based First Banks' wealth management division. Still, she says that the day of a unified standard is coming. And even though it will be a long, drawn-out process, "when it comes, it will be painful to the firms and the FAs who will both need to change the way they do business."

Indeed, a specific pain point to bank programs will involve their licensed bankers as those employees may have a harder time passing the new threshold. "It's absolutely a likely outcome that a unified fiduciary standard will mean the end of FINRA licensed bankers selling securities," says Kevin Carreno, a lawyer and president of Experts Council, a Florida-based consulting firm. Carreno is also a member of FINRA's Board of Governors. "How do you look the customer in the eye and say you're acting as a fiduciary when you have limited product solutions to recommend and only do the job part-time? I don't think you can," he said.

Payuk agreed. "If we have to work under a unified fiduciary standard, I think it's likely that there will be no licensed bankers on the platform, and sales will be limited to life insurance and fixed annuities. That will mean the end of FINRA licensed branch managers and CSRs selling mutual funds, VA's and other securities from the platform."

This could mean a big change for many bank programs with mutual funds, VAs, UIT's, fixed-indexed annuities and even market-linked CDs being sold by licensed bankers. Some bank programs derive more then 40% of their revenue from platform sales, so any changes to how licensed bankers do business can be significant.

If there is a unified fiduciary standard, many banks will likely just eliminate FINRA licensed bankers from the platform. It may not be worth the risk and expense.

Bruce Stava, director of advisory sales at First Bank's wealth management group, notes that a unified standard also may make it harder for online firms. "A fiduciary relationship means an FA must really know their customer. It may be very difficult for the online firms to accomplish this to the degree regulators seem to want. How can these firms really meet a fiduciary standard in a virtual world? I don't know."


Coming to an agreement on a fiduciary standard could take time, however, as industry groups weigh in and the SEC grapples with other decisions tied to Dodd-Frank.

Moreover, there is also disagreement that it's even a good idea.

Carreno says the idea of a unified fiduciary standard sounds good and is politically attractive, but in many ways it is ultimately unworkable.

"It's not in the interest of the big-boys, the bulge-bracket b/d's, to operate under a fiduciary standard. So much of their business is on a principal-basis, buying and selling from their own account, it would be virtually impossible for any b/d to act on a principal basis, even with disclosure."

Dowden disagrees. "From a consumer standpoint, a unified fiduciary standard is long overdue," he said. Nearly all of Invest Financial's 1,200-plus FAs are RIAs as well. "It's now three years after Dodd-Frank was passed and about one-third has been implemented, one-third is in process and one-third, including a unified standard, is stuck." But, he believes it's coming and it's ultimately positive for the industry. "While clients have not been ill-served by the suitability standard, I believe it will benefit everyone when we have a common set of rules and regulations."

However, with gridlock in Washington and the tug-of-war between the SEC and FINRA, he doesn't expect anything until 2014 or 2015. And even then, he expects a "blended" version where parts of the fiduciary and suitability standard will both exist. He summed it up by saying, "it will level the playing field, and that's a good thing for everyone."

One area that brings wide agreement is the inevitable increase in costs to broker-dealers. Dowden notes that there will be "more continuing education, more training, more documentation on customer interactions, and more technology to track, store, maintain and analyze it all."

And banks, along with all other broker-dealers will be looking at higher costs for everything from supervision (more in-branch audits), to more technology (to maintain more documentation and customer-FA records and communications), to training. It's unknown if bank programs will pass these costs on to their clients in higher fees, reduced commissions to FAs or find some other way to handle the increased burdens.

First Bank's Stava says that this shift will drive broker-dealers to products with ongoing fees to "help offset all these additional costs."

So what's the next step on this standards evolution? The SEC has asked for additional comments to be submitted by July 5th, but whatever it comes up with will likely receive vigorous opposition from some players.

For bank program managers, there seems to be a lot of "watchful waiting." Working with the suitability standard for decades, most bank programs are comfortable talking to their customers about risk and they want their customers to understand the downside as well as the upside of any investment products they sell.

But in the future, there may be a new standard to bear.

Paul Werlin is the president of Human Capital Resources Inc.