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November 18, 2013 at 07:32 AM
The SEC’s Investor Advisory Committee plans to vote Friday on one of its subcommittee’s recommendations on how the SEC should craft its fiduciary rule for brokers.
The draft proposal by the Investor as Purchaser Subcommittee, which is headed by Barbara Roper, director of investor protection for the Consumer Federation of America, was scheduled to come up for a vote at the Investor Advisory Committee’s Oct. 10 meeting, but that was postponed because of the government shutdown.
Roper told ThinkAdvisor that the subcommittee’s hope is that “by weighing in early in the [fiduciary rulemaking] process, we can help to shape the form that commission rulemaking takes.”
The subcommittee says that a fiduciary duty for investment advice should include, “first and foremost, an enforceable, principles-based obligation to act in the best interest of the customer.”
In approaching this issue, the subcommittee says that the SEC’s goal “should be to eliminate the regulatory gap that allows broker-dealers to offer investment advice without being subject to the same fiduciary duty as other investment advisors but not to eliminate the ability of broker-dealers to offer transaction-specific advice compensated through transaction-based payments.”
The subcommittee adds that “Though it may require both regulatory flexibility to permit the existence of conflicts of interest and some regulatory changes to reduce the most severe conflicts of interest in the broker-dealer business model, the Committee believes that advisory services offered as part of a transaction-based securities business can and should be conducted in a way that is consistent with a fiduciary standard of conduct.”
While the SEC is not bound by any recommendations of the Investor Advisory Committee, which was created under Section 911 of the Dodd-Frank Act, Section 911 does require the SEC to “review the findings and recommendations of the committee” and “each time the committee submits a finding or recommendation to the commission, promptly issue a public statement assessing the finding or recommendation of the committee; and disclosing the action, if any, the commission intends to take with respect to the finding or recommendation.”
While fiduciary advocates have voiced their support of the recommendations in comment letters to the subcommittee, some other groups have not. For instance, while the Securities Industry and Financial Markets Association says that “many if not most” of the subcommittee’s recommendations “are in accord” with SIFMA’s views on how to implement Section 913 of Dodd-Frank, some recommendations are “incongruous with the intent and requirements” of Section 913.
