The Financial Services Institute supported a uniform best interest standard in letter to Securities and Exchange Commission Chairman Jay Clayton today, but with several caveats.
Specifically the FSI wants the SEC to coordinate the rule for all types of products and warned against exacerbating some of the significant issues advisors are already reporting as a direct result of the U.S. Department of Labor’s fiduciary rule governing retirement products.
“FSI members indicate that the DOL’s Fiduciary Rule is resulting in a reduction in product choice that was not explicitly included in the cost-benefit analysis performed by the DOL during the rulemaking process,” FSI President and CEO Dale Brown says.
“Our members indicate they are limiting product choice in response to the Fiduciary Rule for several reasons, including: the large fixed costs to establish the necessary data feeds from product manufacturers and mutual fund families; the increased risk of class action and other litigation; and the complexity of compliance,” Brown says.
A uniform standard should not restrict investors’ access to affordable products, necessary services or skilled investment advice, FSI maintains.
These factors are causing firms to alter their business strategies in ways that limit the investment vehicles they offer to investors. For instance, many firms are considering whether they must eliminate A-Share mutual fund offerings, the low cost direct-to fund business, and other offerings that benefit investors, Brown adds.
The group, which represents 160,000 independent registered representatives, is supporting a uniform standard of care for all types of investment advice, as along as the SEC oversees the development and enforcement of new a new rule, which is consistent across retirement and non-retirement assets and is coordinated with other regulatory entities.
“FSI members believe that acting in their client’s “best interest” means that a financial advisor shall: place the interests of their client before their own; avoid material conflicts of interest when possible or obtain informed client consent to act when such conflicts cannot be reasonably avoided; and provide advice and service with skill, care and diligence based upon the information known about their client’s investment objectives, risk tolerance, financial situation and needs,” Brown adds
While the DOL has proposed and now postponed a complex disclosure regime for conflicts of interest which firms and the FSI contend is having a chilling impact on the types of products and accounts advisors use with retired clients, going forward FSI wants to see the SEC develop a two-tiered disclosure regime consisting of a concise disclosure document to be supplemented with more detailed disclosures posted to the financial institution’s website.
“Just as no rulemaking should be expected to eliminate all conflicts, which are inherent and unavoidable, no proposal can address conflicts through excessive and duplicative disclosures,” Brown says. “Experience shows that investors already ignore much of the enormous volume of regulatory disclosures they are being provided.”