As the Securities and Exchange Commission continues to try and craft a fiduciary standard for brokers, including those who sell market-based insurance products, most think it is inevitable the standard will stand, and must stand for investors’ protection.

Section 913 of Title IX of the Dodd-Frank Act required the SEC to study the impact of changes to regulatory requirements that would eliminate the broker-dealer exclusion from the definition of “investment adviser” under the Investment Advisers Act of 1940.

Dodd-Frank does not require a rule, just the already-completed study. But internal pressure from the advisory and retail investment world is mounting for clarity and a standard rule—as has interest among private firms advisors and some consultants—for those selling life/annuity insurance and other investment products in the broker channel to live up to fiduciary standards, voluntary or otherwise.

The Financial Planning Coalition, which represents advisors, sent a petition to the SEC signed by more than 5,200 financial planning professionals urging it to apply a fiduciary standard to anyone providing personalized investment advice to retail clients. The Coalition—which consists of Certified Financial Planner Board of Standards, the Financial Planning Association, and the National Association of Personal Financial Advisors—represents financial planning professionals across the country.

While a rule for SEC oversight of brokers is expected this fall, it could be delayed for as long as another two years, thanks to a number of potentially major challenges.

One is the fact that the U.S. Court of Appeals for the D.C. Circuit has shaken its saber at the SEC in recent months, as have House Republican members on the Financial Services Committee, both zeroing in on doubts about the SEC’s use of empirical data to show economic effects of would-be rules.

Language in a July 22 decision by the D.C. Circuit that struck down an unrelated SEC rule allowing shareholder candidates for corporate boards found fault with the economic evaluation the SEC had applied in instituting the rule. The Administrative Procedure Act of 1946 requires the agency to consider the economic impact of a new rule.

The SEC did not return a call for comment on the fiduciary rulemaking process.

Meanwhile, smaller brokers and registered reps themselves are worried about the costs imposed by new compliance regulations.

Charles Symington, the head of government affairs for the Independent Insurance Agents & Brokers of America, said that if a new fiduciary duty were overlaid on top of suitability standards that already apply to broker-dealers and registered reps, it could drive some professionals out of business. Ironically, this would deprive investors of the sound advice they would otherwise get, Symington said.

Meanwhile, broker-dealers argue that they are already subject to fiduciary-like rules and are also subject to Financial Industry Regulatory Authority (FINRA) oversight.

An excellent example put forth by the broker community is a letter last year from Gateway Financial in Pittsburgh, to the SEC to inform the then-uncompleted study on the obligations of brokers, dealers and investment advisers.

“I currently am subject to an array of state insurance regulations and oversight for the sale of fixed and variable annuity insurance products,” stated the writer, Margaret A. Archinaco, director of client services at Gateway Financial, which applies life insurance in the areas of wealth and estate planning. She noted a variety of ongoing required and voluntary evaluations and training by dint of oversight by state insurance regulators and federally, by FINRA.

A fiduciary standard requires firms and people selling investment products to put customers’ interests ahead of their own. Insurance agents who sell products such as variable annuities have traditionally used a suitability standard, which requires that they verify that a product sold to a consumer suits the consumer’s needs.

But that does not mean that they are putting the customer first, just that the product is suitable. It does not have to be the lowest cost or the best one under suitability standards, but as some point out, it does under fiduciary standards.

Another setback for SEC rules, is the fact that this month, the U.S. Department of Labor went back to the drawing board to better fine tune the definition of fiduciary in use for Employee Retirement Income Security Act (ERISA) plans.

Phyllis Borzi, director of the Employment Benefits Security Administration (EBSA), an arm of the DOL, stated in a release that EBSA expects to make it clear in the revised update proposal that “fiduciary advice is limited to individualized advice directed to specific parties.”

Congressiuonal Democrats and Republicans, had both voiced concern that the new DOL definition would be too broad and make a fiduciary out of unintended employees and restrict investment choices.

And some in the investment industry are worried that if they comply with the SEC, they could be out of compliance with the DOL. “If they coordinate, they can write rules that comply with each other,” said John Little, senior vice president for federal affairs for the Insured Retirement Institute (IRI).

The DOL is working with the SEC to come up with a fiduciary definition. It won’t be a standard, one-size-fits-all, but will likely have some overlap on the key elements of fiduciary duty.

Both agencies are likely to work more closely in the fututre and have indicated they will promulgate regulations imposing a single, uniform fiduciary standard of conduct on both broker-dealers and investment advisers, as NAIFA stated in recent testimony embracing FINRA’s oversight.

Last February, SEC Chairman Schapiro stated that the SEC was helping the DOL update a definition of “fiduciary,” but that the effort was separate from the SEC’s own fiduciary standard study, according to her testimony at a House Financial Services Committee hearing.

“I assume that both the DOL and the SEC are going to do a thorough cost benefit analysis—if it is not as thorough as required, the lawyers will go after them again,” said IRI’s Little.

Some say the DOL’s decision to retrench is completely unrelated to any SEC fiduciary rule success, while others say the economic argument cannot be applied to the fiduciary in the same way, and that  not instituting a fiduciary will cost money to investors.

The economic cost of imposing or strengthening a fiduciary duty should be looked at from all points of view, others argue.

“It is imperative that removing excessive costs to investors remain more important than normal regulatory costs from firms,” Knut A. Rostad, chairman of the Committee for the Fiduciary Standard, stated after the DOL decision to rewrite its proposed rule. “Let’s not lose sight of the most worrisome costs in the current system—excessive fees, conflicts of interest and inappropriate retirement products.”

There are two components of fiduciary standard, says fiduciary expert Don Trone, CEO of 3ethos in Mystic, CT. They are: “Duty of loyalty and duty of care.”

“I would expect the two regulators to define different requirements under the duty of loyalty, but the duty of care (the details of a prudent process) could be uniform. The reason why the duty of loyalty will not be the same is that ERISA has much more stringent rules regarding prohibited transactions,” Trone explained.

The duty of loyalty is the biggest concern to broker-dealers because it deals with conflicts of interest, disclosures, principle trades and prohibited transactions, he noted.

It is this duty of loyalty that is at the crux of “harmonizing” agencies’ rules. The IRS, after all, is apparently working on a fiduciary rule as well.

 Instead of looking at whether broker-dealers will fall under a fiduciary standard, look at how, and what will fall into what Trone calls the “fiduciary box”—all activities occurring within the box will be subject to a fiduciary standard, and all activities outside the box, will not.

“Since this is the area where there is the most contention, its promulgation will be delayed—my best, uneducated guess, would be 12 to 24 months,” Trone stated.

Indeed, even back in March, House Republicans had noted that the standard-of-care issues did not provide an adequate basis for changing the existing rule.

But “the consequences of not applying the fiduciary standard are clear,” reminded Rostad, also regulatory and compliance officer at Rembert Pendleton Jackson Investment Advisors in Falls Church, Va. “The longer many advisors or brokers are not held to the fiduciary standard, the longer conflicts will continue to increase costs and reduce returns.”