There was call for a uniform fiduciary standard for brokers and investment advisors who work with retail investors from a number of organizations that testified at the SEC’s Investment Advisory Committee meeting Thursday.
But the two leading associations representing the broker-dealer industry held steadfast that the SEC’s best-interest proposal creates a higher level of protection for consumers without the need to blanket brokers with the same fiduciary standard that governs investment advisors.
“By any measure, the SEC’s proposed best-interest standard materially exceeds the existing Finra suitability standard to the benefit, and for the protection, of retail customers,” Ira Hammerman, executive vice president and general counsel for the Securities Industry and Financial Marketing Association (SIFMA) told SEC staffers and commissioners.
“Reg BI recognizes that brokerage accounts are the right fit for many investors, where fee-based accounts are not,” Hammerman said “Thus, Reg BI wisely seeks to preserve and improve upon the brokerage model for current and future generations of investors. We believe it represents a clear path forward that is both workable for the industry and preserves investor choice.”
Both Hammerman and Dale Brown, president and CEO of the Financial Services Institute (FSI), argued that preserving brokers’ abilities to serve smaller investors is paramount and could be threatened by a fiduciary standard that forces brokers to become investment advisors.
Both SIFMA and FSI are fresh from their legal victory vanquishing the DOL fiduciary rule, which was vacated by the Fifth Circuit Court of Appeals in New Orleans in March and is now officially defunct as the Trump administration has decided not to bring the case to the U.S. Supreme Court.
“It is this point that is so essential to FSI members and their clients—they must retain their ability to choose both the type of relationship with their advisor and the products and investment vehicles they wish to utilize to meet their financial goals,” Brown said.
Brown also said it is important that brokers are able to retain their ability to do “behavioral coaching,” presumably without calling it advice, in order to give their clients the full benefit of their expertise. “These benefits are especially critical for lower- and middle-class investors and it is imperative that they have access to financial education and guidance in whatever form they prefer and can afford,” he said.
Representatives from the AARP, CFA Institute, CFP Board of Standards, Consumer Federation of America (CFA) and the Investment Adviser Association (IAA), however, testified at the SEC meeting that including a fiduciary standard in the SEC’s best-interest proposal is critical to protecting investors from costly, conflicted investment recommendations.
Maureen Thompson, vice president for public policy at the CFP Board, said that in focus groups the group has done, it is clear that consumers have no idea what type of financial professional they are working with or what conflicts may exist and believe it is rude to ask. That is why a blanket fiduciary duty is necessary to protect investors, she said.