Fiduciary advocates renewed their call Tuesday for the Securities and Exchange Commission to act “expeditiously” to establish this year a uniform fiduciary standard of conduct consistent with Section 913 of the Dodd-Frank Act, which says the agency has the authority to write a fiduciary rule for brokers that’s “no less stringent” than the Investment Advisers Act rule.
In a joint letter to SEC Chairwoman Mary Jo White and the four SEC commissioners, the groups — which include AARP, the Certified Financial Planner Board of Standards, the Consumer Federation of America, the Financial Planning Association, Fund Democracy and the National Association of Personal Financial Advisors — provide what they say is “empirical evidence” from academic research, market analysis, and observation of industry practices that illustrates the harm to investors that results from allowing brokers to give advice to retail customers under a “suitability” standard.
“We strongly believe that in order to be meaningful and consistent with Section 913, a uniform fiduciary rule must include more than the current suitability standard supplemented by additional disclosure requirements,” wrote the groups, who dub themselves the “Friends of Fiduciary.”
Designed with a sales relationship in mind, the groups continued, “the suitability standard does not impose the same clear obligation that exists under a fiduciary standard, which requires the advisor to put the customer’s interest first.”
The groups go on to argue that the suitability standard “does not impose an obligation on brokers to appropriately manage conflicts of interest in order to ensure that they do not influence recommendations. These are among the standards that distinguish a suitability relationship from a fiduciary relationship.”
But Ira Hammerman, executive vice president and general counsel for the Securities Industry and Financial Markets Association, said in reaction to the groups’ letter that while SIFMA “fully supports the SEC moving forward with fiduciary rulemaking,” SIFMA ”strongly disagrees with any suggestion that customers of broker-dealers are suffering concrete harm in terms of higher costs or poorer performance.”
In fact, Hammerman continued, ”because broker-dealer customers pay commissions as opposed to asset management fees, they are often more economical than RIA accounts. As for account performance, I’m sure there are plenty of broker-dealer accounts that perform better than RIA accounts, and I’m sure there are examples of RIA accounts that do better than broker-dealer accounts.”
There is no justification, the groups say, “for applying different standards of care to financial professionals who are offering the same services to investors. Over the years, broker-dealers have not only identified themselves as financial advisors, but they have offered virtually identical services to investors in order to compete. The Commission has permitted, at least tacitly, this evolution by failing to apply the appropriate regulatory standard,” the groups say.