It’s been more than a year since I took a hiatus from writing about the competitive playing field to focus on covering the colossal financial services regulatory reform debate as it unfolded in Washington. In my last Playing Field column in January 2009, the Obama Administration was about to be ushered in, and regulators and industry officials were telling advisors to brace themselves for Congress’s inevitable reworking of the financial services regulatory landscape. I reported at that time, too, that advisory trade groups had joined forces to lobby Congress on how the refashioned regulatory landscape should affect the advisory profession. By many measures, those lobbying efforts worked.
Look where we are now. Amazingly, the advisory industry was able to overpower the deep-pocketed and persistent lobbying efforts of the insurance and brokerage industries that fought against applying a fiduciary standard to them and convince Congress that anyone providing retail advice should be a fiduciary. The Securities and Exchange Commission (SEC), under the Dodd-Frank Wall Street Reform and Consumer Protection Act that became law on July 21, has the authority to put brokers under a fiduciary standard of care.
SEC Chairman Mary Schapiro stated quite a few times over the past year–including in an interview with me–that it was crucial that Congress give her the power to put brokers under a fiduciary mandate. After performing a six-month study of the “effectiveness” of existing standards of care for brokers and advisors, the securities regulator has the authority to impose a “harmonized” fiduciary standard on brokers and advisors that provide retail investment advice.
We’ll have to wait and see what this “harmonized” fiduciary standard looks like. Schapiro is ensuring that the advisory industry gets a fair shot at telling her, and the SEC Commissioners, how such a standard should be crafted. As Schapiro explained in a late July speech she gave in Washington, under a new process, the public will now be able to comment before the SEC proposes its rules and before the official comment period opens. This new process, Schapiro said, “Goes well beyond what is legally required and will provide expanded opportunity for public comment and greater transparency and accountability.” Comments regarding putting brokers under a fiduciary standard have been flooding into the agency since the SEC began soliciting comment in late July.
All Eyes on the SEC
With the passage of the Dodd-Frank Act, Congress has punted the hard work to the SEC, and it’s now up to the securities regulator to make some tough decisions–chief among them is crafting a fiduciary standard for brokers. The devil is most assuredly in the details here, and while applying a fiduciary standard to brokers will level the competitive playing field for brokers and advisors, independent advisors may lose some of their competitive edge.
Harold Evensky, president and CEO of Evensky & Katz Wealth Management, and a member of the Committee for the Fiduciary Standard, says that from a purely business standpoint, a fiduciary standard for all “will be a marketing negative for firms like mine as the ‘fiduciary’ story is a significant benefit we offer potential clients that they do not currently get from the wirehouses.” Independent advisors will lose “that [fiduciary] marketing arrow,” he says, but “that loss will be more than offset by the benefit to the investing public.”