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.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
Fearing the Securities and Exchange Commission is headed toward proposing a watered-down fiduciary rule, a broad coalition of organizations urged SEC Chairwoman May Jo White in a Tuesday letter to “establish a uniform fiduciary standard for broker-dealers and investment advisors that is at least as strong as the existing standard.”
The groups—which included the Investment Adviser Association, the Financial Planning Coalition, Fund Democracy, Consumer Federation of America, AARP, NASAA and AICPA—told White that the SEC’s March request for information (RFI) signals to them that the SEC “may be backing away from requiring a fiduciary standard for broker-dealers that is ‘no less stringent’” than the one under which RIAs currently operate.
“The assumptions contained in the RFI fail to include key elements of the fiduciary standard such as the obligation to act in the best interest of the customer,” the groups told White. “If the fiduciary duty is based on the RFI assumptions, it would be weaker than that originally set forth in the Section 913 Study and far less stringent than that currently imposed under the Advisers Act.”
If the SEC were to adopt this approach, the groups said they “fear that it would significantly weaken the fiduciary standard for SEC-registered investment advisers, while adding few new protections for investors who rely on broker-dealers for investment advice. This approach would have negative consequences for investors and is one we would vigorously oppose.”
Barbara Roper (right), director of Investor Protection for CFA, stated that “broker-dealers call their sales representatives financial advisers, they market themselves based on the advice they offer, and they encourage investors to rely on them as trusted advisers. It is hardly surprising then that most investors make no distinction between brokers and advisers and that disclosure is ineffective in eliminating that investor confusion.”
This confusion, Roper continued, is “presumably a key reason Congress, in drafting Section 913 of the Dodd-Frank Act, specified that any new standard for brokers must be the same as the standard for advisers and no weaker than the existing standard under the Advisers Act.” Rope added that while the groups “remain optimistic that the SEC can craft a regulatory approach that provides much needed strengthened protections for investors—a standard that CFA can support—doing so will require the agency to radically rethink the assumptions in the recently issued request for information and to adopt a far more investor protective approach.”
David Tittsworth, executive director of IAA, added that the commission’s RFI “does not appear to incorporate the most crucial aspect of fiduciary duty—that the overarching duty to act in the client’s best interest is an ever-present overlay to all of the other duties, rules, and assumptions discussed in the RFI.” Indeed, he continued, “the RFI seems to contemplate simply adding disclosure requirements to existing broker-dealer rules and labeling the result a fiduciary standard. We would oppose such an approach as watering down the Advisers Act fiduciary standard.”
FPA President Michael Branham noted that “requiring a fiduciary standard of broker-dealers doesn’t mean they need to stop earning commissions or providing services to middle-class clients.” Rather, he said, “it means that they need to put their clients’ interests first by, among other things, fully disclosing and appropriately managing conflicts of interest. Financial planners, who have voluntarily embraced the fiduciary standard, have demonstrated that it can be applied successfully across business models for the benefit of both clients and advisors.”
Check out Mercer Bullard’s Dissection of Proposed Fiduciary Legislation Offers Way Forward on AdvisorOne.