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May 12, 2014 at 10:40 AM
The current debate over whether the Securities and Exchange Commission should write a rule to put brokers under a fiduciary mandate is “not fair right now” because of a mismatch in exam data between brokers and advisors, SEC Commissioner Daniel Gallagher told ThinkAdvisor on Monday.
The debate over whether the agency should use its authority under Section 913 of the Dodd-Frank Act to write a uniform fiduciary rule for brokers and advisors “has been colored by a view of brokers that’s decidedly negative,” Gallagher said. “If you talk to many of the consumer advocates and others, they will cite to you all of the transgressions of the brokers.”
But “there are so many public displays of malfeasance in the brokerage industry because we [the SEC] resourced oversight of brokers so much more than advisors. Therefore, we know a lot more about brokers and their practices — we know when they are committing rule violations, and there are so many more [BD] rules to violate.”
Within the Section 913 debate, Gallagher continued, “advisors are always seen as pure and brokers are seen as miscreants, and especially now after Title IV of Dodd-Frank added so many more [private fund advisors] to our rolls; we simply don’t have a good enough understanding [of advisors] and the enforcement statistics that we have on the broker side so that we can have an informed debate.”
In a Friday speech at the 46th annual Rocky Mountain Securities Conference in Denver, Gallagher said that the SEC’s failure to catch investment advisor wrongdoers as quickly as those in the broker-dealer realm is due to the lack of a self-regulatory organization for advisors as well as “unfunded mandates” imposed upon the SEC by the Dodd-Frank Act.
He noted that “leveraging the current resources and expertise of broker-dealer SROs to assist in investment advisor examinations could greatly facilitate our ability to examine advisors without undertaking the daunting project, with Congress, of creating a new investment advisor SRO out of whole cloth.”
Gallagher reminded ThinkAdvisor that he’s “been pretty clear that I don’t think we need to do a [fiduciary] rulemaking, so if it takes years until after we have a real exam program for advisors [to reassess a fiduciary rulemaking], that’s fine with me.”
Gallagher noted in the speech the “eye-opening” results of recent statistics that he requested from the SEC’s Office of Compliance Inspections and Examinations, which were based on disclosure information submitted by broker-dealer registered reps on FINRA’s BrokerCheck system.
