The problem with analyzing complex documents such as, oh, I don’t know, laws,for instance, is that we all have a tendency to focus on the parts we like, and overlook or at least downplay the parts we’re not so keen on. I’m beginning to suspect that some of us—me included—have been guilty of such rosy thinking about Dodd-Frank Section 913, and the Obama Administration’s Financial Reform white paper that initiated it. This notion recently hit home for me as I was reading AdvisorOne Washington Bureau Chief Melanie Waddell’s excellent interview with SEC chairman Mary Schapiro for the 2011 IA 25.
In this case, it was a pretty understandable oversight as regards the regulation of financial advisors, as both of the key principles behind the white paper and Sec. 913 sound eminently reasonable: to create a fiduciary standard for brokers that is no less stringent that the duty of RIAs under the ’40 Act, and to “harmonize” the regulation of brokers and investment advisors. To the minds of many of us, both appear to be worthy goals, which have been a long, long time coming. Yet in our exuberance at the prospect of finally getting a much needed upgrade in the protection of financial consumers and simplified regulations for financial advisors, few us stopped to question—again, me included—whether in fact these two goals were actually compatible, or even complementary.
It was while reading this quote from the interview with Schapiro when the light bulb came on: “[much of the attention regarding theSection 913 study has focused on its findings regarding fiduciary duty] because that’s the more monumental of the issues,” Schapiro said, “there is also a lot of interest in the second issue [harmonization]. So we continue to have meetings with all sorts of stakeholders on how they think it makes sense for us to move forward on both of those issues.”
The reality is that we’re taking about two very separate and basically unrelated ideas here—a fiduciary duty for brokers and harmonizing regulation—but because the Administration’s white paper asked for both in the same paragraph, they have become linked. Because the problems have become linked, their solutions have become linked, even though the “solutions” have very little to do