The Securities and Exchange Commission is seeking hard data from the financial services industry on the costs and benefits of imposing a fiduciary standard of care on broker-dealers when they give personal financial advice.
Sifma and the Investment Adviser Association (IAA) called the study a necessary and long awaited step towards placing the fiduciary obligation on broker-dealers.
What has made it more necessary than before, IAA lobbyist Neil Simon said, are a series of court decisions mandating the SEC to give greater attention to costs versus the benefits of new rules when they are being written.
In its request, the SEC said cost/benefit figures were virtually non-existent in the comments received in the formation of a 2010 study that looked into the possibility of harmonizing broker-dealer and investment advisor regulations.
That study recommended the regulator use its powers under the Dodd- Frank Act to make the two regulatory regimes similar.
While the SEC said it’s request for more data will help determine whether to harmonize fiduciary obligations, the agency said it has not decided whether to formulate rules that would achieve that end.
In earlier comments, proponents of a fiduciary standard for broker-dealers have argued the requirement would force firms to offer retail customers the lowest-cost alternative, stop offering proprietary products, charge only asset-based fees (versus earning commissions on product sales) and continuously monitor all accounts.
The broker-dealer community doesn’t want the RIA community to dictate what a uniform fiduciary standard of care would look like, and the SEC has said it wants any uniform fiduciary model it passes to accommodate all business models.
Simon from the IAA noted that by the time rule writing begins on a fiduciary standard, a majority of the SEC could be comprised of new members. Mary Jo White, who is President Obama’s nominee to replace Mary Schapiro on the five-member board, is awaiting confirmation. Commissioner Troy Paredes’ term expires in June and he is not seeking re-appointment. Elisse Walter, the current chair, has indicated she will step down in the near future.
In addition to seeking information on potential harmonization of advisor and broker-dealer rules, the agency said it is particularly interested in data on conflicts of interests.
Late last month, the SEC’s Office of Compliance Inspections and Examinations said its exam priorities for the coming year will include investment advisor conflicts of interest in compensation arrangements and allocation of investments among clients.
The agency is on the lookout for investment advisors who are putting their best investments in the portfolios of clients that make performance-based fees (mostly hedge funds) at the expense of clients who don’t (mostly mutual funds).
Public comment on the SEC request is due in early June, but the agency regularly accepts submissions after the official cut-off date.
To see the full text of the SEC document, click on www.sec.gov/rules/other/2013/34-69013.pdf