SEC's Uniform Fiduciary Rule Could ‘Haunt’ Advisors

Plaze said in separate comments to ThinkAdvisor.com 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.”

Both broker-dealers and advisors “have obligations to their customers that are significantly higher than most participants in the marketplace have to each other. Broker-dealer obligations to their retail customers are evolving and in many cases have been considered similar to those of an advisor,” Plaze said.

Indeed, Mercer Bullard, founder of Fund Democracy and associate professor at the University of Mississippi School of Law, said on a separate panel that a fiduciary rule by the Department of Labor “may be where all the action is,” as the SEC “doesn’t have the capability to decide the [fiduciary] issue one way or another.”

Arthur Laby, professor of law at Rutgers University, agreed that “it is very hard to make the [fiduciary] law identical for brokers and advisors,” but stated that brokers, “in some respect, have brought [the need for a fiduciary rule being applied to them] upon themselves” through their use of titles and advertising that he says create “a reasonable expectation that they would work under a fiduciary standard.”

Laby argued that investor confusion around what a fiduciary duty means will “never” be solved, but Karen Nystrom, director of advocacy for the Financial Planning Association, which supports putting brokers under the same fiduciary as advisors, said on a separate panel that while “there would still be confusion under a fiduciary rule … at least the client would be protected.”