Whether a fiduciary duty for broker/dealers and all types of financial advisory professionals makes it into the final financial reform legislation (which remains in conference at press time), all advisors can expect heightened scrutiny of their practices by the Securities and Exchange Commission (SEC)–and other regulators including possibly FINRA–going forward.
What’s more, the SEC–with or without the powers to create fiduciary standards for all financial services professionals–will move forward with its plans to harmonize the rules for broker/dealers and advisors.
After final enactment of the financial services reform legislation–which is expected by July 4–there will be “a flurry of activity by the Securities and Exchange Commission (SEC) and other regulators,” predicted David Tittsworth, executive director of the Investment Adviser Association (IAA) in Washington, during a Webinar conducted by Investment Advisor in early June. The final legislation will provide the SEC with more resources, Tittsworth says, giving the securities regulator the funds it needs to increase its scrutiny of investment advisory firms, and “that means that [advisors'] compliance and risk management is more important than ever before.”
Indeed, Dan Barry, director of government relations for the Financial Planning Association (FPA) agreed during the Webinar that enactment of the financial services reform bill is “the end of the beginning.” For advisors, a lot of issues will still be left unresolved, Barry said. For instance, the Financial Industry Regulatory Authority (FINRA) will continue vying for oversight of advisors, and if the final reform legislation includes a fiduciary duty for brokers, finessing such a standard and applying it will take some time.
But as the reconciliation process began in early June among House and Senate conferees, the committee members used the Senate reform bill as the base text for their deliberations. The Senate version includes an SEC study of broker/dealer and advisor obligations and the necessity of a self regulatory organization (SRO) for advisors, whereas the House bill includes a provision that would require brokers to adhere to a fiduciary standard of care.
House Financial Services Chairman Barney Frank (D-Massachusetts) had promised to continue to press during the reconciliation process for the House language calling for a fiduciary standard for brokers, as did his counterpart on the committee, Rep. Paul Kanjorski (D-Pennsylvania), who is also chairman of the House Subcommittee on Capital Markets. As the conferees convened on June 10 to deliver their opening remarks, Kanjorski stated that the final reform package must include “the strongest possible fiduciary standard for every financial intermediary providing personalized advice.” He also said that while the SEC’s performance under SEC Chairman Mary Schapiro “has improved markedly,” Congress “must consider how to fundamentally alter securities regulation by including in the final bill my comprehensive external study to thoroughly examine the deficiencies of our current system and to identify what further reforms it must undergo.”