More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
While heavyweights like Vanguard founder John Bogle and former Securities and Exchange Commission (SEC) Chairman Arthur Levitt plan to press SEC Chairwoman Mary Schapiro at a meeting Tuesday to move forward in proposing a fiduciary rule for brokers, industry experts said Wednesday that those efforts will likely prove futile.
A fiduciary rulemaking at SEC “appears to be stalled with little to no signs that the agency appears to go forward with the issue that Schapiro once said was a priority,” Barbara Roper (left), director of investor protection at the Consumer Federation of America (CFA), told reporters on a Wednesday conference call.
The call was held as part of “Fiduciary September,” as the Institute for the Fiduciary Standard has christened this month. Roper said the cost-benefit analysis that the SEC has been pressed to perform on a fiduciary rule has “paralyzed” the agency.
And threats of potential litigation over the rule have caused Schapiro to slow down. “Because of the threat of litigation, [Schapiro] is now reluctant to move forward” on a fiduciary proposal without support from a Republican commissioner, Roper said.
What’s more, the SEC is faced with mandatory rulemaking obligations under the Dodd-Frank Act, and now, more recently, under the JOBS Act, Roper said, so the SEC will “prioritize” its rulemakings. Dodd-Frank only gave the agency the authority to write a fiduciary rule; it didn’t mandate one.
Roper was joined on the call by Knut Rostad, president of the Institute for the Fiduciary Standard, and Ron Rhoades, assistant professor and chairman of the financial planning program at Alfred State College.
DOL's Spirit Could Nudge SEC Back Into Action
While Fiduciary September is important because it raises “the profile of the issue,” Roper said, and “reignites the discussion,” it may not be enough to boost the chances of any real action taking place at the SEC.
But Rhoades said that he has heard rumblings that the Department of Labor (DOL) plans to repropose its fiduciary rule in November, depending on which way the election goes. DOL, Roper said, “has continued to move forward” with its rule to amend the definition of fiduciary under the Employee Retirement Income Security Act (ERISA), and DOL’s “spirit on this issue has the ability to get this [fiduciary] issue moving again” at the SEC.
While Rostad said that the fiduciary standard advocated by “the largest Wall Street lobbying group,” the Securities Industry and Financial Markets Association (SIFMA), “is a sales/broker standard and not a fiduciary standard at all,” Roper countered that “the best chance” to get the SEC moving again on a fiduciary rulemaking is to focus on areas where SIFMA and the advisory industry agree regarding a fiduciary duty for brokers.
It’s important to highlight “the areas of agreement regarding the appropriate approach, which are significant, rather than always highlighting our differences,” Roper told AdvisorOne. “While the differences are important and can’t be ignored, our best chance of success will come if we can build from that common ground and treat each other’s viewpoint with respect.”
Ira Hammerman, SIFMA’s general counsel, told AdvisorOne in an e-mail message that the areas mentioned above are indeed areas of agreement between SIFMA and the advisory industry, and that SIFMA “looks forward to continuing to work together with Roper and other stakeholders on this important initiative and continue to encourage the SEC to conduct the analysis necessary to develop a workable fiduciary framework for both brokers and investment advisers.”
If the SEC proves incapable of moving forward on fiduciary rulemaking, Roper said it was also possible to “make progress raising the standard of conduct for brokers and improving the ability of investors to make an informed selection of financial intermediaries through FINRA rulemaking,” pointing to FINRA’s recently amended suitability rule, and its concept release regarding pre-engagement exposure, which would require a disclosure statement be presented to retail investors at or before commencing a business relationship.
But Rhoades said FINRA’s new suitability rule is still only “a minor” improvement. “There is still a huge difference between suitability requirements and the fiduciary standard.”