Creating a uniform fiduciary duty rule for brokers and advisors is a “deeply flawed” concept, and the Securities and Exchange Commission should instead create a “generalized obligation” for brokers that requires them to act in their clients’ best interest, Robert Plaze, the former deputy director of the agency’s Division of Investment Management, said Tuesday.
“To put BDs and advisors in the same box [under a uniform fiduciary rule] is not going to work and will lead to problems,” most notably “diluting the current Advisers Act fiduciary duty,” Plaze, who’s now a partner at the law firm Stroock & Stroock & Lavan in Washington, told attendees Tuesday at TD Ameritrade Institutional’s Fiduciary Summit, held in Washington.
“A uniform fiduciary duty may come back to haunt the Advisers Act fiduciary duty,” Plaze said.
The competitive tension between the advisory and brokerage industries has “paralyzed” the SEC, Plaze said, partly because both groups have “camped out” on the “extreme” opposite sides of the issue. “To get anything done here [regarding a fiduciary rule] there has to be compromise,” he said.
He suggested that such a compromise should be that the SEC settle on a “broad obligation that broker-dealers act in the best interest of their clients” rather than trying to adopt a uniform fiduciary duty by a rule that would be necessarily a product of compromises with broker-dealers.
Plaze said in separate comments to ThinkAdvisor that “most of the enforcement actions brought by the SEC against investment advisors involve activities that would be or are also violations of rule 10b-5 or other provisions of the securities laws that broker-dealers are subject to.”