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November 20, 2013 at 10:14 AM
As ThinkAdvisor’s Melanie Waddell reported Monday (SEC Investor Advisory Committee to Vote Friday on Fiduciary Plan), the Oct. 4 recommendations by Barbara Roper’s Investor as Purchaser Subcommittee will finally come up for a vote by the SEC’s Advisory Committee on Friday.
These recommendations are notable for three reasons: The first is that they finally breathe some sanity into the fiduciary issue from an SEC-affiliated body. Second is that SIFMA’s response to the recommendations finally reveals the brokerage industry’s level of denial on the fiduciary issue — and should serve as a warning flag to its supporters. Third, is my nomination for the funniest line of 2013, by Ms. Roper, when describing the timing of her subcommittee’s recommendations for a fiduciary rule mandated under the Dodd-Frank Act which was signed into law on July 21, 2010: “by weighing in early in the [fiduciary rulemaking] process, we hope we can help to shape the form that commission rulemaking takes.”
To be sure, the Investor as Purchaser Subcommittee’s recommendations powerfully make the case that the goal of broker reregulation “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…the question is not whether broker-dealers are adequately regulated when they act as salespeople but whether they are adequately regulated when they act as advisers. In the view of the Committee, the existing securities regulatory scheme that treats broker-dealers as salespeople does not offer adequate investor protection when broker-dealers offer advisory services, since under a suitability standard they generally remain free to put their own interests ahead of those of their customers.”
Toward that end, this subcommittee is the first official group (that I’ve heard of, anyway) to get right to heart of the fiduciary issue: “The Committee favors an approach that involves rulemaking under the Investment Advisers Act to narrow the broker-dealer exclusion [my emphasis added] from the [Investment Advisers] Act while providing a safe harbor for brokers who do not engage in broader investment advisory services or hold themselves out as providing such services.”
What’s more, the subcommittee goes on to address the question of investor caveat emptor: “Some others have suggested that regulation is not needed because investors are capable of choosing for themselves whether they prefer to work with a broker-dealer operating under a suitability standard or an investment adviser who is a fiduciary. This might have been true if the Commission had over the past several decades adopted a regulatory approach that maintained a bright line between broker-dealers and investment advisers. But that has long since ceased to be the case.”
