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Regulation and Compliance > Federal Regulation

Why we need smart regulation

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Editor’s Note: This letter was submitted in response to Bob Clark’s blog, The cost of fiduciary: The wacky folks at NAIFA are at it again.

To the editors:

Bob Clark’s column, “The ‘cost’ of fiduciary: The wacky folks at NAIFA are at it again,” does little to advance the standard of care debate. This is not the first time he has used this important issue to take condescending pot shots at NAIFA and our members. So be it. But he raises some points that I would like to address.

The NAIFA-American College survey shows that an overwhelming percentage of registered representatives and dually registered advisors believe a one-size-fits-all SEC fiduciary rule will increase their costs and limit their ability to serve lower- and middle-income clients. Mr. Clark obviously disagrees. However, the matter is hardly decided. That is why the SEC, quite properly, is working to determine what the costs and benefits will be to consumers of applying a uniform fiduciary standard of care to investment advisors and broker-dealers.

I believe Mr. Clark is either naïve or disingenuous when he claims new layers of federal regulation would bring no additional costs to advisors or their clients. NAIFA members have a keen understanding of the costs that regulations carry. They are among the most heavily regulated financial professionals on the planet. Mr. Clark alludes to this fact when he writes, “How anything could cost more than FINRA is a mystery to me.”

What he fails to understand is that FINRA is not going anywhere. An SEC regulation would apply to registered reps on top of the extensive scrutiny they now receive from FINRA and their broker-dealers.

I don’t know of any regulation that comes without a cost. Perhaps that is why investment advisors are resisting, tooth-and-nail, suggestions by the SEC that they should be subject to some of the FINRA rules currently applied to broker-dealers and their registered representatives. Costs affect how financial professionals serve their clients and, in the case of registered reps, whether they are able to serve clients who are not wealthy.

Yet Mr. Clark and others in his camp are anxious to heap additional regulations on registered reps without demonstrating a clear need. They stand behind the “best interests” slogan as if that vague notion is all a fiduciary standard of care would entail. They use the slogan as a marketing tool to disparage registered reps, while failing to acknowledge the excellent work registered reps and dually registered advisors are doing for millions of American families.

A regulation issued by a federal commission will not be a simple slogan. It will carry legal requirements and, yes, financial costs. So, it’s probably important that it should benefit the people it is supposed to help.

No one has demonstrated that clients of advisors who are fiduciaries receive better care than those of registered reps. No studies exist to show that wealth managers are better able to help lower- and middle-market investors meet long-term goals. Precisely what harm do consumers currently suffer that needs a regulatory remedy? This important question has not been answered. 

NAIFA believes regulation is crucial to preserve the integrity of the financial services industry, but it must be smart regulation. The SEC would make a colossal blunder by issuing a rule that could increase costs to middle-market investors while not addressing a clearly identified problem. It is important that they get this right.

That’s why I am pleased that the SEC is taking this process much more seriously than Mr. Clark seems to be.


Dr. Susan Waters,



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