While advocating that both RIAs and brokers should be held to a fiduciary standard, SEC Chairman Mary Schapiro hinted that the agency might have to allow exemptions from that standard for certain brokerage activities.
Her remarks implied a possible dilution of fiduciary standards only a day after a sweeping reform package from the Obama Administration called for uniform application of such standards.
Speaking to the New York Financial Writers Association on June 18, Schapiro commented that brokers should be required to disclose any departure from the fiduciary framework should they engage in one. Implicit in her remark was the notion that it would be impractical to hold brokers to a fiduciary standard 100% of the time.
If a conflict of interest "can't be avoided," it should be disclosed, she said, without expanding on how problematic it would be to enforce such disclosure. More needs "to be done" to harmonize regulations, in her view.
Schapiro also continued to maintain that the RIA and brokerage businesses have converged to the point where they are providing virtually "identical services" that are "indistiguishable" to most of the public, an assertion that most RIAs would seriously dispute and one that seems applicable only to the most unsophisticated investors. Noting that one third of the 26 actions that the SEC has brought against "Ponzi- and Ponzi-like schemes” were perpetrated by RIAs in the five months since she became chairman, she added that fiduciary standards were not a "panacea" to prevent fraud.
Asked why so few actions have been brought against Wall Street big boys who played such an instrumental role in creating the global financial crisis, Schapiro observed that the SEC hadn't completed all its investigations, hinting former Countrywide CEO Angelo Mozilo, recently charged with insider trading, might not be the last big shot to face the agency's enforcers.
Asked about the SEC's inability to squelch either the proliferation of Ponzi schemes and other fraudulent behavior, Schapiro said the agency receives 1.5 million tips and complaints each year and has a staff of only 3,600 people. Since taking over, she has tried to upgrade the quality of SEC investigators and she commented that the layoffs that have swept Wall Street enabled her to find more skilled, experienced investigators.
She also said the SEC would apply to Congress to obtain whistleblower status to encourage securities firm employees to report fraud when perpetrated by their colleagues.
Oh, and three days ago the SEC banned Bernard Madoff from the securities industry for life. They're getting tough.
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