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December 04, 2013 at 11:07 AM
I distinctly remember sitting in a crowded New York City restaurant somewhere near Times Square in the fall of 1993, with then CFP Board CEO Bob Goss and Board chair Tom Potts. I was a senior editor at Worth magazine then, and Goss, a lawyer, was explaining the Board’s “two hat” rule: CFPs were required to act in the interests of their clients when they were acting as financial planners, but were not required to do so when they were acting as brokers (the legal term for this, he said, was “the scope of the engagement”).
I’d been covering financial planners for over a decade by then, but this was first I’d heard of this loophole, and I remember thinking: “There’s not one client in a thousand who will understand how this works.”
Forward 20 years to Melanie Waddell’s story last week, Will the SEC Create Two Kinds of Fiduciaries?, in which she explores the very real likelihood that the Commission will ultimately come out with a separate “fiduciary” standard for brokers. Separate, that is, from the ‘40 Act standard that RIAs are currently held to. Not only would two standards undermine the intent of Dodd-Frank, it would make the problem it’s trying to solve worse, instead of better.
In her story, Melanie quotes a “who’s who” list of SEC watchers, including Brian Graff (executive director of the American Society of Pensions Professionals and Actuaries, the ASPPA), David Tittsworth (executive director of the Investment Adviser Association, the IAA), Jeff Brown (senior VP of legislative and regulatory affairs for Schwab), and Duane Thompson (senior policy analyst at fi360), all opining that the likelihood of two fiduciary standards is anywhere from “possible” to “exactly what the SEC will do.”
Should the SEC come out with a double standard, it wouldn’t be entirely the Commission’s fault.
Congress, in its infinite wisdom, wrote in Dodd-Frank Section 913 that should the SEC write a fiduciary standard for brokers, it must be “uniform” for both brokers and RIAs, and “no less stringent” than the existing ‘40 Act standard; while, at the same time, not make “receiving commissions” or “the sale of proprietary products” a violation of the fiduciary standard.
How’s that supposed to work? Good question.
