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April 08, 2015 at 08:41 AM
Backers of a tough fiduciary standard for brokers remain skeptical that the Securities and Exchange Commission can deliver such a rule, as comments made by former and current SEC officials appear to signal a forthcoming watered-down disclosure-based standard that tolerates conflicts.
Knut Rostad, president of the Institute for the Fiduciary Standard, cites statements made by past and present regulators that signal a climate at the agency in which “conflicts of interest are a regular and inevitable part of the advisor landscape” and which holds a view that “conflicts are ‘OK,’” according to his just-released paper, “Conflicts of Interest and the Duty of Loyalty at the SEC.”
In the paper, Rostad concludes, in part, that “no consideration” has been made “for what is in the client’s ‘best interest,’” and that “disclosure is deemed the relevant treatment” for how advisors should fulfill their fiduciary duties.
“Recent SEC decisions, statements from senior staff and commissioners and statements from former SEC staff and commissioners provide bold lines of a clear picture as to the SEC’s view of the duty of loyalty,” the expert said in the group’s report.
These bold lines, he continues, “depict a new and benign view of conflicts,” one that believes “conflicts are routine and acceptable — not inherently inconsistent with providing objective advice.”
Rostad also points to failed attempts by former SEC Chairwoman Mary Schapiro to bring a fiduciary rulemaking to fruition in 2009; Schapiro was unable to secure enough votes to get such a rule passed.
Barbara Roper, director of investor protection for the Consumer Federation of America, agrees that, like Schapiro, White faces a polarized commission, and that the “real question” in seeing a fiduciary rule through to fruition is whether White can find the three votes needed to pass a “strong, pro-investor rule and whether she can find a way to do that under the auspices of Section 913” of Dodd-Frank.
On March 17, White said that the agency should “act” on a uniform fiduciary standard for brokers and investment advisors, one that should be “codified principles-based and rooted in the current fiduciary standard for investment advisors.”
