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. 

“We first issued a fiduciary standard in 2007. When we took this step we were told that no one would ever sit for the CFP exam again. The opposite has happened. Our membership has grown 44 percent,” Thompson said.

In the CFP Board's revised code of ethics that will go into effect in October, “the public will no longer have to determine what level of service a CFP is providing,” Thompson said. “The revised, new code extends planners’ fiduciary duties from just financial planning services to all financial advice.” The new CFP Board code also includes a duty of loyalty, duty of care and duty to follow customer instructions.

Thompson said the CFP Board will be making comments to the SEC under the auspices of the Coalition for Financial Planning, whose members include the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA). The group wants the SEC to use the CFP Board code of ethics fiduciary standard in its proposed broker regulation.

The “episodic” application of best-interest rules for brokers in the SEC proposal is problematic, both consumer and advisor advocates argued. “It inappropriately allows broker-dealers to escape any ongoing duty to customers,” said Micah Hauptman, the CFA's financial services counsel. “It applies only on a transaction by transaction basis,” which leaves wide holes in the regulation.

Karen Barr, president and chief executive officer of the IAA, echoed that sentiment, saying, “We have some concerns that Reg BI would apply only at the time a recommendation is made. With investment advisors the duty can’t be turned on or off or waived. A consumer may rightly assume that an advisor is acting in their best interest,” said Barr.

“We have advocated for two decades that fiduciary duty should apply to all professionals,” Barr added.

Doubts about the proposal were echoed by SEC Commissioner Kara Stein. “Regulation best-interest reports to propose a minimum standard that brokers may not put their interests before investors. But I’m not sure it does that,” she said.

Representatives of the AARP, CFA, CFP Board and IAA said at the meeting that it is imperative that the SEC extend the deadline for comments in order to make results of consumer testing public first. They are asking the SEC to extend the August 7 deadline for comments by 90 days.

“We appreciate the commission is testing the disclosure and we think that testing should be made available,” said Thompson. “There is no way to fully evaluate the effect of the rule proposal without the testing.”