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 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.