Podcast Center
Video Center
Webcasts
Resource Center
Events
November 17, 2010 at 02:46 AM
Even though the SEC is still making up its collective mind about the whether and how of a fiduciary duty for brokers, the increased awareness of the fiduciary duty resulting from financial re-regulation is already having visible effects. The Department of Labor, for instance, is tightening up its rules regarding advisors’ roles in defined contribution plans.
On Oct. 21, the DOL issued a proposal to end the 35-year-old exemption for advisors who work with 401(k)s and other types of retirement plans. Under the new rule, an advisor’s fiduciary duty under ERISA section 3(21)(A)(ii) would be amended to include: “Advice or recommendations as to the management of securities or other property.” Until now, most advisors and brokers working with 401(k) plan sponsors have avoided a fiduciary duty by outsourcing the investment manager due diligence, or simply relying on their firm’s approved lists. Under the DOL proposal, their fiduciary duty to select appropriate investments would no longer be transferable.
Then, according to fi360 (the folks who offer fiduciary credentials and standards for advisors and brokers), the SEC is expanding the fiduciary duty to municipal advisors. It seems that Section 975 of the still largely unread Dodd-Frank Reform Act imposed a fiduciary standard on municipal advisors. For the first time, firms registered under the Securities and Exchange Act of 1934 will have a blanket fiduciary duty to their clients. What’s more, also for the first time, FINRA will have to apply more than a fair dealing standard to municipal advisors.
So what, I hear all you non-municipal advisors ask? Here’s what: the SEC has to approve the rules proposed to enforce this new standard and what it decided may offer us a clue as to what it’s thinking about a broker standard, as well. In this case, it seems the Municipal Securities Rulemaking Board (MSRB) proposed prohibiting the common practice of advisors offering advice to an issuer of muni bonds and resigning to serve as the underwriting broker—the proverbial “two hats.” The brokerage industry protested this affront to this age-old practice, but the SEC would have none of it, and now one of those
hats must remain in the closet for every transaction. Said fi360: “…activity in this area by the MSRB may have a ripple effect on standards to beestablished by the SEC for other broker-advisors.”
