Thompson was a senior policy executive with the Financial Planning Association (FPA) when the group brought such a lawsuit more than 10 years ago against the SEC and won, derailing the agency’s efforts to let brokers behave exactly like investment advisors without registering as such. The FPA’s successful offense asserted that the agency does not have the authority to override Congress to broaden the “solely incidental” section of the Investment Advisers Act.
Consumer and fiduciary advisor groups have lobbied hard to create a fiduciary standard for brokers, whom the Obama administration contended are responsible for costing investors some $17 billion annually in hidden fees, costs, commissions and other incentives.
“The rule boasts investor protections, but delivers broker protections,” said Knut Rostad, president of the Institute for the Fiduciary, who met with SEC Commissioner Hester Pierce earlier this week to try to lobby the SEC to toughen the proposal.
“But for ending high-pressured sales contests, the rule requires brokers do nothing different or new to avoid conflicts or to mitigate conflicts," he said. "The release boasts letting B-Ds decide their own compliance policies. No wonder investors in the SEC roundtables could not make sense of the rule.” The institute was one of many that commissioned private testing of investors reaction to the SEC’s proposals. The FPA, CFP Board and Consumer Federation of America also funded focus groups and investor testing that showed that the new rules confused consumers and failed to provide conflict and fee clarity.
Foes of the rule appear to be bracing for SEC approval.
"The rule will be approved without the extensive changes that are needed," Roper said. "It will leave investors worse off than if the commission had failed to act at all—duped into believing their financial advisors have to act in their best interest when that is not the case and, in some cases, deprived of protections they currently receive under state common law fiduciary standards."
“It is not outside the realm of possibility that the commission could fix the myriad shortcomings in its proposal," she added. "We’ve offered concrete suggestions to do just that, but it is highly unlikely that they will do so."
Both Roper and Rostad have argued that the SEC’s best-interest proposal does not actually require brokers to mitigate their costly conflicts of interests, but merely to disclose them in fine print.