“The premise that business models should drive market conduct standards, rather than fiduciary accountability in a relationship based on trust and confidence for identical advisory services, is flawed,” wrote Thompson on Thursday. “Moreover, the limited restriction on use of ‘advisor’ and ‘adviser’ titles only to fiduciaries falls short by allowing the use of other titles, such as ‘wealth manager’ and ‘financial planner,’ to be available for non-fiduciary advice.”
The proposal for advisors could enforce licensing, continuing education and net capital requirements on advisors while expanding their responsibilities with due diligence and disclosure.
Essentially, the advisors’ standard would collect in one place and codify a hodgepodge of laws, regulations and court decisions that have created a de facto standard for fiduciary advisors since the passage of the Investment Advisers Act of 1940.
Congress Chimes In
On Capitol Hill, one of Congress’s strongest critics of fiduciary reform, Rep. Ann Wagner, a Missouri Republican, looked to the SEC’s proposals as a worthy replacement for the DOL’s fiduciary rule.
“After eight long years, the SEC is finally returning as the rightful regulator of broker-dealers,” said Wagner in a release. “Since taking on this fight against the Department of Labor fiduciary rule almost six years ago, I have always argued that oversight of broker-dealers must be about Main Street Americans and their access to sound financial advice. Plain and simple, the DOL rule was confusing, lacked sufficient economic analysis to be taken seriously, and was already hurting low and middle-income retirement savers. Today’s decision by the SEC is an important first step in overturning years of misguided policy.”
On the other hand, Massachusetts Secretary of the Commonwealth William Galvin, an outspoken fiduciary advocate, said the SEC was acting on a bias that rewarded brokers over independent advisors.
“The Securities and Exchange Commission had an opportunity yesterday to demonstrate that their recent statements about protecting working Americans’ hard-earned retirement savings were genuine,” wrote Galvin on Thursday. “I am sorry to say that their proposed ‘Best Interest’ rule fails to do that. This proposed rule appears to be drafted to appease the broker-dealer industry and their lobbyists, protecting the industry’s best interests instead of the best interests of investors.”
Rob Foregger, co-founder of NextCapital and a fiduciary advocate, acknowledges that there’s still work to be done in creating a clear, easy-to-understand fiduciary regulation for the industry and the consumers it serves.
“We must refine this imperfect proposal into a commonsense best-interest standard that drives regulatory efficiency, market transparency, customer alignment and industry innovation,” Foregger said in a release on Thursday. “Fasten your seat belts, there are miles to go before we sleep.”