Kicking SEC’s Fiduciary Efforts Back Into Gear

While Fiduciary September is important because it raises “the profile of the issue,” Roper said, and “reignites the discussion,” it may not be enough to boost the chances of any real action taking place at the SEC.

But Rhoades said that he has heard rumblings that the Department of Labor (DOL) plans to repropose its fiduciary rule in November, depending on which way the election goes. DOL, Roper said, “has continued to move forward” with its rule to amend the definition of fiduciary under the Employee Retirement Income Security Act (ERISA), and DOL’s “spirit on this issue has the ability to get this [fiduciary] issue moving again” at the SEC.

While Rostad said that the fiduciary standard advocated by “the largest Wall Street lobbying group,” the Securities Industry and Financial Markets Association (SIFMA), “is a sales/broker standard and not a fiduciary standard at all,” Roper countered that “the best chance” to get the SEC moving again on a fiduciary rulemaking is to focus on areas where SIFMA and the advisory industry agree regarding a fiduciary duty for brokers.

It’s important to highlight “the areas of agreement regarding the appropriate approach, which are significant, rather than always highlighting our differences,” Roper told AdvisorOne. “While the differences are important and can’t be ignored, our best chance of success will come if we can build from that common ground and treat each other’s viewpoint with respect.” Roper laid out the areas where SIFMA and the advisory industry agree. “We both support moving forward through parallel rules under the Advisers Act and Exchange Act establishing a principles-based rule for personalized investment advice to retail investors, supported by a combination of rules and guidance to help clarify how that standard applies to the broker-dealer business model,” she said. And, “I think we also agree that it was the clear intent of Congress to preserve the ability of brokers to offer advice within the context of a sales-based business model, in other words that the goal was not to eliminate conflicts but to ensure that any conflicts were fully disclosed and appropriately managed.”

Ira Hammerman, SIFMA’s general counsel, told AdvisorOne in an e-mail message that the areas mentioned above are indeed areas of agreement between SIFMA and the advisory industry, and that SIFMA “looks forward to continuing to work together with Roper and other stakeholders on this important initiative and continue to encourage the SEC to conduct the analysis necessary to develop a workable fiduciary framework for both brokers and investment advisers.”

If the SEC proves incapable of moving forward on fiduciary rulemaking, Roper said it was also possible to “make progress raising the standard of conduct for brokers and improving the ability of investors to make an informed selection of financial intermediaries through FINRA rulemaking,” pointing to FINRA’s recently amended suitability rule, and its concept release regarding pre-engagement exposure, which would require a disclosure statement be presented to retail investors at or before commencing a business relationship.

But Rhoades said FINRA’s new suitability rule is still only “a minor” improvement. “There is still a huge difference between suitability requirements and the fiduciary standard.”