From the May 2010 issue of Investment Advisor • Subscribe!

Broker/Dealer Briefing: Schapiro Speaks on Fiduciary, 12b-1s

In an exclusive interview, the SEC Chairman speaks her mind to IA

Investment Advisor Washington Bureau Chief Melanie Waddell conducted another of her exclusive interviews with Securities and Exchange Commission Chairman Mary Schapiro on April 8 by telephone. The conversation touched on multiple areas of interest to independent broker/dealers, including the call in the main financial services reform bill--from Connecticut Senator Chris Dodd--for the SEC to study a fiduciary standard for brokers. In addition, Schapiro sent signals on how it may treat 12b-1 fees when the issue comes before the Commission this summer.

Are you waiting to see the outcome of financial services reform before you make a final determination on how to proceed with harmonizing the rules for broker/dealers and advisors?

At the heart of that issue of harmonizing rules for broker/dealers and advisors is a fiduciary duty, and having the same standard of care for broker/dealers and investment advisors, and that requires legislation. So we've been working very hard in the House and the Senate, to mixed results honestly, to try to get that grant of authority to have a fiduciary duty across both categories of financial professionals. So until we have the legislation, it's hard for us to get very much else done. That said, we have other issues that we're moving ahead on: 12b-1 fees, point of sale disclosure, things in and around that space that we think are important. But our attention right now is focused on fighting for the legislative provision that would mandate a uniform fiduciary standard.

So you will continue to fight for a fiduciary duty for both brokers and advisors?

Absolutely. We sent a letter on March 9, a very strong letter, to the Senate again pushing the issue and we worked hard on it in the House as well. It's an important issue for us.

As far as the Dodd bill asking for the SEC to study the issue of broker and advisor obligations again, do you think the SEC should be studying this issue again?

We're happy to study whatever Congress would like us to study. The Rand study was done; I think we have a very good handle on the issue. The key thing from our perspective is that if Congress wants us to study the issue again, that's fine. But at the end of that study we need the authority to go ahead and take action. [The legislation] doesn't give us that authority. That's the real flaw from our perspective. There is not a grant of authority when the study is done to go beyond our existing authority in respect to rule writing.

So you'd have to go back to Congress?

That's the issue.

That could take a long time.

Yes. The bill needs to give us the ability to create the fiduciary standard of conduct for all professionals at the conclusion of the study, and that's the piece that's so critical that's missing.

When will something happen with 12b-1 fees?

I'm hoping we're going to go forward this summer. Timing is always hard to predict. But we got a big one out of the way today (April 8) with the new [asset] securitization rules that were proposed. But we have some things in the pipeline that we're finishing up this year. With 12b-1s, we're going to try and address the issues that have been perennially raised about 12b-1 fees. Without getting too specific, I would hope we would go beyond disclosure and clarity, which has always been a complaint about, 'What's a 12b-1 fee?'...but also with the level of fees; we want to look closely at that as well.

(For a complete transcript of this interview with SEC Chairman Mary Schapiro, go here.)


Washington Bureau Chief Melanie Waddell can be reached at mwaddell@investmentadvisor.com.
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