The investment advisor industry has been left scratching its head over a controversial new advisor conduct rule that was among three proposals the Securities and Exchange Commission approved by a 4 to 1 vote late Wednesday.
“The Adviser Standard of Conduct” proposal seeks to expand advisors' current duties and disclosure, while pushing for federal licensing, net capital requirements, a fidelity bond mandate and continuing education requirements.
The proposal, open for public comment for 90 days, has come as a shock to the advisor industry, which met numerous times with SEC Chairman Jay Clayton and SEC staff over the past 11 months as the agency worked on the proposal. Yet the industry now finds itself caught off guard.
The new advisor standard of conduct seeks to codify and collect in one place all of the numerous court and regulatory decisions that the investment advisor fiduciary standard has been built on over the past 80 years.
But even commissioners wonder if the proposal goes too far and may in fact distract from the larger package of proposals the SEC approved.
The package includes a “Regulation Best Interest” for brokers that falls short of a fiduciary standard and a new four-page client disclosure form that will require advisors and brokers to disclose fees, conflicts of interest and whether or not they provide ongoing account service to clients.
“I’ll be looking forward to public comments to see whether we are making new law,” said SEC Commissioner Hestor Peirce, who called the advisor proposal a paradigm shift that may go beyond the agency’s authority. For instance, the proposal would for the first time allow “advisors and clients to shape their relationship with informed consent. This is new,” he said.
Peirce also worried if the timing of the proposal “is a distraction from the [other] proposals to encourage greater clarity between brokers and their clients."
“I worry that what this package may provide just another excuse of for investors to avoid thinking about their finances at all,” said Peirce, who added that she was “hesitantly” voting to release the spate of proposals for comment as a starting point for discussions only.
Peirce was not alone in her concerns.