The Investment Adviser Association (IAA) has raised concerns about SEC guidance that the group believes dsicourages registered investment advisors from using the word “fiduciary” in customer relationship summaries (CRS).
“We do have concerns [that the guidance is] really going to do a significant disservice to investors and exacerbate the confusion between broker-dealers and advisors,” IAA General Counsel Gail Bernstein said in an interview.
The CSRs, which have been required by the SEC since June 30, 2020, as part of the SEC's Regulation Best Interest, were originally sold to the industry as a comparison-shopping tool that would allow investors to discern the differences between the services, obligations and conflicts they will encounter when they hire fiduciary advisors, dually-registered advisors or brokers.
But IAA executives said they are concerned that the latest staff guidance makes all financial professionals look alike, which is inaccurate since RIAs have an all-encompassing, relationship-based fiduciary duty and dually registered advisors have a transaction-by-transaction duty to investors.
At the heart of IAA’s concern is "Frequently Asked Question" guidance SEC staff issued March 29 that states that: “embellishing factual statements about the capacity or services of an investment professional or firm with phrases such as ‘an investment adviser who is held to the fiduciary standard’ is likely to be inappropriate.”
Staff also cautioned against describing fiduciary duty as a "higher standard" or the "highest standard." In addition, "it is likely misleading and non-responsive for an investment adviser to represent that the fiduciary duty alone mitigates or eliminates conflicts of interest,” the guidance stated.
Firms may use the word fiduciary or fiduciary duty “only to the extent permitted by the Form CRS Instructions and the applicable item,” SEC staff said.
“We are very much appreciative that the guidance confirms that advisors can use the word fiduciary and fiduciary duty, but the commission should also provide guidance about when it would be appropriate to do so,” IAA President Karen Barr said.
Where the trade group has particular concerns, Bernstein added, is that the FAQ indicates that using the term fiduciary is an “embellishment. And we very strongly believe that fiduciary is not an embellishment. ... It’s a correct and accurate statement of their duty under the law.”
“So, that is something that is concerning to us and our members,” she said.
IAA also takes exception to a separate March 29 SEC staff bulletin that states in its introduction that “although the specific application of Reg BI and the IA fiduciary standard may differ in some respects and be triggered at different times, in the staff’s view, they generally yield substantially similar results in terms of the ultimate responsibilities owed to retail investors.”