Some financial industry officials are telling the SEC that imposing a fiduciary standard on broker-dealers would further confuse consumers about the roles of brokers and advisors.
The National Association of (Retirement) Plan Advisors warned that labeling both registered investment advisors and commission-based brokers as fiduciaries will only further obfuscate the differences.
“How would retail customers know which kind of fiduciary to engage under the proposed uniform fiduciary standard?” the association asked in public comments submitted to the Securities and Exchange Commission. “Should they engage the kind of fiduciary that cannot be paid on a commission-basis, but has a duty to monitor the performance of investments that it recommends? Or, should they engage the kind of fiduciary that can be paid on a commission-basis, but does not have a duty to monitor the performance of the investments that it recommends?”
Arguing for a strong fiduciary standard for financial advisors and broker dealers, the Financial Planning Coalition released a study showing registered investment advisors and registered representatives with fiduciary obligations experienced stronger asset and revenue growth over the last five years than those not delivering fiduciary services. In furthering its case for strong oversight, the group said over half of registered reps surveyed and more than two-thirds of registered investment advisors polled believe the fiduciary standard is appropriate.
Friday was the official deadline by which the public could submit comments on the SEC’s proposal to impose a fiduciary standard on broker-dealers and other possible changes in standards of conduct for them and financial advisors.
Schwab Advisor Services said adopting uniform fiduciary rules could more than double compliance costs for RIAs. The potential rules outlined by the SEC could result in more than $1 billion in additional costs for the RIA industry, Schwab said, and many advisors believe that their clients would be negatively impacted. Schwab recently surveyed RIAs on the proposed rules. Schwab supports "an appropriately tailored uniform fiduciary standard" when RIAs and broker-dealers give advice, but is concerned about the burden RIAs would bear if broker-dealer rules on licensing, supervision, and books and records are imposed on them.
“Most RIAs are small businesses in the commonsense use of that term, and such a significant increase in regulatory burden would have to be justified,” Schwab said in comments to the SEC. Schwab asked that the SEC “de-couple its consideration of the uniform standard of care from other potential rule areas for harmonization.”
Under the SEC proposal, there is no clear way investment professionals could explain the differences between financial advisor and broker-dealer fiduciaries to retail customers in a way that would permit clients to make an informed decision, according to the retirement association.
The American Bankers Association warned that a uniform standard would place common rules on the uncommon functions of financial advisors and bank trust departments.
Countering arguments that a uniform fiduciary standard for financial advisors and other service providers would lead to less confusion among investors, the American Bankers Association said “fiduciary” for bank trust departments has a specific meaning that differs from the one outlined by the SEC.
“[A trust department] fiduciary must act in the best interests of all existing and future beneficiaries. The duties of a fiduciary under trust law are many. Chief among them are the duties of loyalty, care, impartiality, and prudent investment,’ said the association.
Retirement plan administrator TIAA-CREF urged the SEC to adopt a separate fiduciary standard for those who offer episodic financial advice.
The company said it often gives one-time advice to plan participants on specific investment options in their brokerage accounts and IRAs as well as financial planning assistance and managed accounts.
The Institute for the Fiduciary Standard said the SEC proposals create more ambiguity regarding the differences between financial advice and marketing.
“Written or oral communications that are clearly ‘fiduciary advice’ are narrowly defined. ‘Facts and circumstances’ exploration will be necessary to parse language and review materials to draw the line between fiduciary and non-fiduciary communications,” said institute President Knut Rostad.
The Investment Advisor Association (IAA) said it is concerned that the SEC may apply broker-dealer rules to investment advisors, while only sparingly mentioning the possibility that investment advisor regulation should apply to brokers that provide advice.
“We would oppose wholesale application of ‘check-the-box’ broker-dealer regulation to investment advisors,” said IAA Executive Director David Tittsworth.
Tittsworth said IAA is also concerned that the SEC may simply add disclosure requirements to existing broker-dealer rules and label the result a fiduciary standard.
The National Association of Insurance and Financial Advisors said it opposes a uniform fiduciary standard since it could substantially increase compliance costs for its members. Those costs would have to be passed to customers, NAIFA warned, which would lead to a decrease in services and advice for less well-off clients.