More On Legal & Compliancefrom The Advisor's Professional Library
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
The road to a uniform fiduciary standard, if there will be one, remains long.
The list of options that the Securities and Exchange Commission will consider in crafting a uniform fiduciary standard for brokers and advisors is still being developed, Stephen Luparello, head of the SEC’s Division of Trading and Markets, told lawmakers Thursday, and once that list is solidified the agency may request feedback on those options.
Luparello also told members of the House Financial Services Capital Markets Subcommittee that SEC staffers are weighing the benefits versus the costs of a fiduciary rulemaking.
SEC Chairwoman Mary Jo White told ThinkAdvisor in a mid-April interview that if the agency decided to move forward with a fiduciary rule, “there are a number of ways to do that.” White directed SEC staff to compile a list of options.
The development of that list is "still in process," Luparello said in response to a question from Rep. Ann Wagner, R-Mo.
Luparello said in his Thursday testimony at a hearing titled “Oversight of the SEC's Division of Trading and Markets" that his division is working with the divisions of Economic and Risk Analysis and Investment Management “to evaluate potential [fiduciary rulemaking] options, in light of the information available, for the commission’s consideration.”
Luparello cited the SEC's request last March for feedback on the potential impacts a uniform fiduciary standard of conduct, or other regulatory approaches, may have on retail investors and how any negative impacts could be mitigated.
When asked by Wagner about the results of that request, Luparello responded that the “level of information was less than” staff had anticipated, adding that a “new round” of data requests may be needed once a fiduciary options list is completed.
Wagner co-sponsored a bill, H.R. 2374, the Retail Investor Protection Act, which would have required the Department of Labor to wait to repropose its fiduciary rule under the Employee Retirement Income Security Act until 60 days after the SEC issues its fiduciary proposal under Section 913 of the Dodd-Frank Act. However, while her bill passed the House, the Senate had "no interest" in taking up the bill and President Barack Obama’s senior advisors threatened to veto it.
Wagner also cited a study by the SEC in 2011 that she said “failed to identify whether investors are being harmed” with the current regulatory regime for brokers and advisors.
“Without investor harm, is there any basis to conclude that a uniform fiduciary standard would enhance” investor protection? Wagner asked.
Luparello replied that the “benefit” of a fiduciary rulemaking has to “stand up to the cost,” which he said the agency continues to study. There are “certain aspects of the fiduciary standard that do provide protection [to investors], but costs have to be weighed,” he said.
Trading and Markets and Investment Management staff, Luparello said, are also providing “technical assistance” to DOL staffers in retooling their fiduciary plan. Among other things, he said, “the staff is seeking to assess the practical impact potential DOL rulemaking may have on investors who seek to access advice from financial services providers, including broker-dealers.”
Rep. Dennis Ross, R-Fla., said he had “some grave concerns” regarding the DOL’s fiduciary proposal, stating that the DOL’s plan to amend the definition of fiduciary under ERISA would spark “an exodus of brokers from [that] market.”
DOL announced in late May that it would delay releasing its controversial fiduciary redraft until at least January 2015 from the originally slated August release date.
Luparello said that SEC staff is assessing, with DOL staff, the “cost” of such a DOL rulemaking as well as the issue of “investor choice,” but added that the SEC “doesn’t have any control over [DOL’s] decision making.”