Calling a fiduciary rule for broker-dealers a “must,” Financial Industry Regulatory Authority Chairman and CEO Richard Ketchum laid out model guidelines Wednesday.

Ketchum said the standard is needed because too many brokers are pushing complex financial products on investors without appropriate fee and risk disclosures.

The regulator said a more stringent customer-focused standard for brokers other than suitability is also advisable because some firms continue to approach conflict management on a haphazardly and some fail to adequately discuss potentially higher fees involved in IRAs to permit a customer to make a fully informed decision.

He said the standard should be based on three essential tenets: active identification and management of firms’ conflicts; dramatically improved disclosure of risks associated with the product and product-related fees, firm and third party incentives; and more effective management of the compensation incentives to registered persons.

“The best interest standard should make clear that customer interests come first and that any remaining conflicts must be knowingly consented to by the customer,” said Ketchum.

To protect retail investors from conflicts of interest, the Finra CEO said the rules should require brokers to have an ongoing process to identify conflicts which could be costly to investors and develop written supervisory procedures to address how those conflicts would be eliminated or managed.

Also key to an effective fiduciary standard would be enhanced disclosures through an annual Form ADV-like document annually providing clear, plain English descriptions of conflicts, and all product and administrative fees, said Ketchum.

He advocated additional disclosures with either point-of-sale documents on conflict, risk and fee issues relating to a recommendation, or providing a client with a written, balanced explanation of the benefits of the product or strategy recommended.

Ketchum said brokers should also be required to clearly demonstrate their efforts to manage the conflicts imbedded in differential fee compensation. But he added he doesn’t think the goal should be to eliminate all fee differences across different investment products.

Ketchum said he believes the Securities and Exchange Commission has enough time to develop, propose and approve a fiduciary duty for broker-dealers before President Obama leaves office in January 2017.

Ketchum re-iterated his opposition to the Labor Department’s proposed fiduciary standard for retirement plan advisors by saying there are too many provisions likely to unfairly land brokers in the courts.

He said he is worried judges might draw sharp lines prohibiting most products with higher financial incentives, no matter how sound the recommendation might be.

The Finra chief cautioned the lack of useful guidance in the DOL proposed rule, if adopted, will lead many firms to close their IRA business entirely or substantially constrain clients.

The labor department proposal is not the appropriate way to meet that goal of investor protection, said Ketchum.

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