More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
The SEC’s Study on Investment Advisers and Broker-Dealers, which was released to Congress Friday night, has brought reaction or comment from some industry groups that, so far, are lining up in fairly predictable ways.
Often referred to as the Fiduciary Study, it recommended that broker-dealers, “when providing personalized investment advice about securities to retail customers, a fiduciary standard no less stringent than currently applied to investment advisers” under the Investment Adviser Act of 1940. This echoes the language called for in the Dodd-Frank Act.
Politics will undoubtedly play a part in the implementation of rules that are put forth by the SEC following the study’s recommendations. In an unusual move, SEC Commissioners, Kathleen Casey and Troy Paredes, both Republicans, issued a joint dissent statement about the Fiduciary Study’s findings and recommendations.
While there is a great deal of work ahead for the SEC in proposing, receiving comments on and then finalizing the rules that would put the Fiduciary Study’s recommendations into practice, the lines are already being drawn for intense lobbying of the SEC as it acts. Advocates for investors are already starting to square off against pro-business advocates; the pro-consumer lobby against the pro-business lobby.
“Some of the issues are controversial,” says David Tittsworth (left), executive director of the Investment Adviser Association, an advocacy group for registered investment advisors (RIAs). “The ball’s in the SEC’s court; they’ve got the authority” to make rules on recommendations in the Fiduciary Study. “There’s still a lot of work,” Tittsworth told AdvisorOne.com, “It’s very likely there will be rulemaking on a fiduciary standard of care but there are a lot of open questions: principal trading; disclosure,” and others.
Political Timing of SEC Commissioners’ Terms
Some of the wildcards already being discussed concern when each of the SEC’s five Commissioners is slated to step down, and whether, if rules can be delayed long enough, will that be enough to stem what some see as an SEC investor-protection stance. Would the appointment of another Republican Commissioner make a difference in seeing which Fiduciary Study rules become final?
Timing is very much an issue. Although protecting investors is one of the SEC’s original mandates, it has not always seemed to be a top priority. To that end, the Commissioners’ terms all end on June 5 over a staggered period of years. Comm. Luis Aguilar’s term ended in 2010; Comm.
Kathleen Casey’s in 2011; Comm. Elisse Walter’s in 2012; Comm. Troy Paredes’ in 2013; and Chairman Mary Schapiro’s in 2014, according to SEC spokesman John Nester. But, he told AdvisorOne.com, they can continue to “serve a year-and-a-half after their terms ends until they are reappointed or replaced.” So the timing is more flexible than it might appear at first glance.
Funding is another issue, one which Walter (right) pointed out in stark relief in her dissent after the release of a separate SEC Study on Jan. 14 on Enhancing Investment Adviser Examinations. The SEC’s funding is an annual appropriation from Congress that is a fraction of what the SEC raises each year in fees. At issue is the adequacy of that funding to enable the SEC to fulfill the tasks that the Dodd-Frank Act mandated in action items and then ongoing funding to carry out new, much larger oversight burdens. For more see, “In Unusual Move, SEC Commissioner Elisse Walter Dissents on SRO Study.”
SIFMA, which advocates for the wirehouse banks and insurance broker-dealers (BDs), praised the Fiduciary Study—with reservations. SIFMA’s general counsel Ira Hammerman said in a statement on Monday, “It is especially important that the SEC recognized that any fiduciary standard should not pick business model winners and losers, and that the Commission will need to issue interpretive guidance to allow firms to operationalize this new standard."
The Financial Services Institute, an advocacy group for independent broker-dealers, released a statement on the Fiduciary Study on Monday saying, “FSI supports the Study’s efforts to provide a roadmap to improved investor protection through a uniform standard of care and harmonized regulatory requirements. The Study also emphasizes the need for regulators to provide broker-dealers and investment advisers with clear guidance on how to comply with the new requirements.”
The Financial Planning Coalition also released a s tatement supporting the Fiduciary Study and called on the SEC to “Quickly Promulgate Rule.”
“Investors expect and deserve advice that is in their best interests, regardless of who is providing the service,” said Susan John, who is the 2010-11 Chair of the National Association of Personal Financial Advisors (NAPFA).
“Broker-dealers are currently held to the suitability standard, which requires that advice they provide clients merely be suitable – and not necessarily in the client’s best interest. The Coalition has consistently advocated for the extension of the fiduciary standard to broker-dealers who provide personalized investment advice,” the release stated. The members of the Coalition include the Certified Financial Planner Board of Standards (CFP Board), the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA).
Commending the SEC staff for “their excellent work,” The Committee for the Fiduciary Standard (of which this reporter is a member), issued a statement Monday saying the SEC’s recommendation of “a fiduciary standard no less stringent than currently applied to investment advisers under the Advisers Act, is a “bold blueprint and provides an excellent foundation for the rulemakingto follow.”
The release adds that the “report’s repeated reinforcement of the need to preserve the fundamental fiduciary duties of loyalty and care establish touchstone principles that are central to meaningful reform.”
For the latest news and analysis on the SEC Study releases and related developments, see:
The Fiduciary Study:
The SRO Study: