While fiduciary advocates called for the SEC to create a strong fiduciary standard that could be applied uniformly across the entire industry, groups like the ACLI called for the SEC to take into account fiduciary regulations being drafted and applied at other agencies, by regulatory organizations and in the states when the agency was creating a uniform standard across jurisdictions and to preserve different standards for brokerage representatives and financial advisors.
One industry group battling the DOL’s proposals, the Insured Retirement Institute, lauded the SEC’s efforts on Thursday.
“We are particularly appreciative of the commission's commitment to collaborating with their counterparts at the DOL, Finra and the state insurance and securities departments around the country to develop a cohesive and consistent regulatory framework,” wrote Lee Covington, the IRI’s senior vice president and general counsel. “IRI looks forward to reviewing the details of the proposals with our members and engaging constructively with the commission in the coming weeks and months."
The SEC’s proposal focuses on disclosure, requiring brokers to reveal information about their conflicts of interest and mandating that they have a reasonable basis to believe that their investment recommendations are in their clients’ best interest.
Disclosure is not enough, wrote David Trainer, CEO of investment research firm New Constructs, in a Thursday blog post.
“History proves that, while disclosure is important, it’s not enough on its own,” wrote Trainer. “There was plenty of disclosure revealing the issues with credit default swaps and CDOs in the lead up to the financial crisis, but almost no one identified them because they were buried in prospectuses running in the hundreds of pages. A disclosure-only standard perpetuates the same needle in the haystack problem plaguing the status quo. Investors shouldn’t have to plow through long and complicated filings just to ensure that their advisors are obligated to fulfill the fiduciary duties of care and loyalty.”
As part of the new disclosure requirements, advisors and brokerage representatives would be required to provide clients with a disclosure form to summarize the client relationship and to explain their standard of conduct, fees and services.
The SEC’s best interest standard doesn’t go as far as the DOL’s fiduciary rule proposal, but some financial watchdogs felt the new standard presents a clearer division between financial advisors and broker-dealers.
Jon Stein, CEO of Betterment for Business, argues that the rule moves brokers closer to a fiduciary standard.
“Retail investors currently are faced with a complex financial landscape littered with poorly disclosed conflicts of interest,” said Stein in a comment released on Thursday. “We’ve long been supportive of any attempt to improve the outcomes of investors and applaud the SEC’s efforts to improve transparency and the quality of investment services.”