Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > Federal Regulation > SEC

NAIFA, AALU Clash with CFA at Fiduciary Standards Hearing

Your article was successfully shared with the contacts you provided.

WASHINGTON BUREAU — Republicans on the House Financial Services Committee teamed with insurance agent groups today to attack U.S. Securities and Exchange Commission (SEC) efforts to apply a uniform fiduciary standard to investment product sales.

The committee’s Capital Markets and Government-Sponsored Enterprises Subcommittee of the House Financial Services Committee organized a hearing to review proposals for U.S. Capitol changes in investment advisor oversight rules, including uniform fiduciary standard proposals.

Terry Headley, president of the National Association of Insurance Financial Advisors (NAIFA), Falls Church, Va., testified that SEC moves to apply a fiduciary duty to broker-dealers would reduce product access and product choice.

“This concern is borne out by data we have collected over the past year,” Headley said.

Barbara Roper, a director at the Consumer Federation of America, Washington, countered that investors’ lack of sophistication and heavy reliance on recommendations by investment professionals makes them vulnerable to abuse.

“Regulatory standards in this area are notably weak and inconsistent, promoting investor confusion and setting an unreasonably low bar for professional conduct,” Roper said.

Changing the rules in this area could provide dramatic benefits, Roper said.

Today, investment advisors must abide by a fiduciary standard, which requires sellers to put clients’ interests first. Broker-dealers and their representatives, including many reps who sell variable annuities and variable life insurance products, use a suitability standard, which requires sellers to verify that the products sold to customers appear to suit the customers’ needs.

Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act required the SEC to conduct a study on the topic and then apparently gives the SEC to develop a final rule. The SEC already has conducted a study; uniform fiduciary standard critics say the study was inadequate.

Sentiment at the hearing today was that a SEC final rule on the standard-of-care issue might not represent the final word on the issue.

The U.S. Court of Appeals for the D.C. Circuit recently threw out two SEC rules based on a court finding that the agency had not followed impact analysis rules. That ruling reverberated at the hearing today.

“The need for an empirical basis and rigorous cost-benefit analysis in SEC rulemaking is critical, particularly in view of the SEC’s recent experiences with rulemaking challenges in the D.C. Circuit Court of Appeals,” Ken Ehinger, chief executive officer of M Holdings Securities Inc., Portland, Ore., testified on behalf of the Association of Advanced Life Underwriting, Reston, Va.

Rep. Spencer Bachus, R-Ala., chairman of the full Financial Services Committee, said Dodd-Frank Act

Section 913 gives the SEC the authority to create a new standard of care for broker-dealers but does not require it to do so.

“Even though the SEC has yet to provide Congress with any empirical data or economic analysis to justify a rulemaking on the standard of care for broker-dealers, the SEC’s apparent plan is to push forward with this rulemaking by recalling examiners and reassigning them to write these optional rules,” Bachus said. “It is questionable whether the SEC should undertake a rulemaking for a new standard of care for broker-dealers at the expense of other statutorily-mandated rulemakings. If the SEC decides, however, to issue a proposal to implement Section 913, it must act carefully and comprehensively to avoid disrupting an investor’s relationship with his or her chosen investment professional.”

Also at the hearing, Ehinger and Headley criticized a U.S. Department of Labor proposal to update the Employee Retirement Income Security Act (ERISA) fiduciary definition.

Critics of the current definition say it is so narrow it leaves out wrongdoers who have abused apparent fiduciary status; critics of the Labor Department’s new definition say it is so vague and so broad it could turn individuals and entity that had no intention of serving as fiduciaries into accidental fiduciaries. Some critics of the Labor Department revision effort have asked whether the current definition has let any malefactors escape punishment.

Bachus said the Labor Department revision appears to be moving forward even though it would create a conflict between the standards for advisors for investment accounts and the advisors for retirement accounts, and even though it apparently would make the practice of swaps dealers entering into swaps with retirement plans illegal.

“The SEC, Commodity Futures Trading Commission and Labor Department must coordinate their efforts to minimize harm to investors,” Bachus said. “The last thing our economy needs is additional disruption or elimination of financial products and services currently available to American investors.”

Rep Judy Biggert, R-Ill., said the proposed Labor Department fiduciary definition revision is example of overreach and duplication. The proposal could reduce the number of options that investors rely on for retirement, she said.

Other fiduciary standard coverage from National Underwriter Life & Health:


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.