I was talking to Institute for the Fiduciary Standard’s chairman and founder, Knut Rostad, yesterday, about, well, the state of the fiduciary standard for brokers. He told me that he and IFS board members Tamar Frankel and Jack Bogle were scheduled to talk with new SEC Chairwoman Mary Jo White next week about that very topic, and asked me what I thought he should say to her. While I wouldn’t presume to advise such an august trio of fiduciary advocates, I did have some thoughts about what I would tell the Chairwoman, in the off chance that the opportunity ever arose. (Santa Fe is a long way from Washington D.C.).
At the risk of seeming impertinent (I know, it’s shocking), I’d start the conversation by admitting I prepared for the meeting by visiting the Commission’s website and clicking on the “What We Do” button. I then landed on a page that starts: “The Investor’s Advocate: How he SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation.” Right below that, the first line in the Introduction read: “The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, ands facilitate capital formation.” I’d note that “investor’s advocate” and “protect investors” is right there, up front, in both sections.
I’d apologize for stating the obvious, and acknowledge that as a former U.S. attorney, she’s undoubtedly well aware of all this. And yet, I’d continue, that despite this well-known mission of the SEC, investor “advocacy and protection” seems to have gotten lost—or at least, back burnered—in the multi-year conversation about how to fulfill the Dodd-Frank mandate to create a fiduciary standard for brokers equal to the existing standard for investment advisors. “Business model neutrality,” “cost-benefit analyses,” “harmonization,” “investor choice” (which apparently is essential in broker responsibility, but not so much when it comes to arbitration) and most recently “coordination” with the Department of Labor, all have become central topics of debate, while nary a word gets uttered about protecting investors who couldn’t tell you the difference between a fiduciary duty and a suitability standard if their lives depended on it.