In a bid to push the deadlocked fiduciary rulemaking process forward, advisory and consumer trade groups that support broadening the fiduciary role for all advice givers made an unusual move in late March. Those groups told the SEC that they support portions of the framework put forth by the brokerage industry’s trade group to develop such a rule.
However, the groups stressed that while they agree with many of the points laid out in the Securities Industry and Financial Market Association’s proposal from July 2011 regarding the route that should be taken in developing a fiduciary rule for brokers, they also “disagree, sometimes strongly, with others.”
Namely, the pro-fiduciary groups argue against SIFMA’s assertion that the SEC should create a new fiduciary duty standard. The groups write that the “goal in writing the new rules should be to extend the existing Advisers Act standard to brokers, while clarifying its applicability in the context of broker-dealer conduct, rather than to replace the Advisers Act standard with something new and different.”
In their 16-page letter to SEC Chairman Mary Schapiro, the groups—which include the Investment Adviser Association, the Consumer Federation of America, AARP, CFP Board, Fund Democracy, the Financial Planning Association, and the National Association of Personal Financial Advisors—state that they “strongly support extension of the Investment Advisers Act of 1940 fiduciary duty to all broker-dealers when they offer personalized investment advice about securities to retail customers.”
The best way to accomplish this goal was outlined in the Section 913 study issued by the Commission staff in January 2011, the groups state, which called for the adoption of “parallel rules imposing a uniform fiduciary duty on broker-dealers and investment advisers consistent with Congress’s grant of authority under Section 913 of the Dodd-Frank Act.”
“Properly implemented,” the letter said, “this approach would provide badly needed and long overdue protections for individuals who receive investment advice from broker-dealers without imposing undue regulatory burdens on brokers and without disrupting transaction-based aspects of the broker-dealer business model.”
The groups also argue that broker-dealer claims that imposing a fiduciary duty on them would force them to abandon commission-based compensation, proprietary sales or transaction-based recommendations are “clearly unfounded.”
Broker-dealers’ claims in this regard, the groups say, “ignore both the clear direction from Congress with regard to how the fiduciary duty would be applied and extensive evidence that the Advisers Act fiduciary duty is sufficiently flexible to apply to a variety of business models.”