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Regulation and Compliance > Federal Regulation > SEC

SEC Fiduciary Rule Likely to Address Broker, Advisor Titles: Peirce

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SEC Commissioner Hester Peirce said Thursday that “it’s time” for the agency to write a fiduciary rule and that she supports the rule including measures to address broker and advisor titles.

“I’m certainly open to trying to address that issue,” Peirce said in response to a question from Karen Barr, president and CEO of the Investment Adviser Association, at the group’s annual compliance conference in Washington, on whether the agency should address regulating broker and advisor titles in its anticipated fiduciary rule, as varying titles have lead to investor confusion. “I wouldn’t be surprised if we see something along those lines,” perhaps with “guidance on what they can and cannot call themselves.”

Peirce, a Republican, said that “it’s been time for decades” for the agency to write a fiduciary rule.

The Labor Department, in its fiduciary rule, “took steps that were quite destructive,” Peirce said, adding that the securities regulator needs to “come in with our experience and address [the fiduciary issue] from a better and more principled standpoint.”

Peirce said that while she’s “looking forward to doing something in this [fiduciary] area,” clarification is needed on applying a “best-interest standard” to broker-dealers in a fiduciary rulemaking. “I still don’t understand what it means; [best-interest] means something different to different people,” Peirce said. “I hope we can put some meat on the bones of what that might actually mean in practice.”

Added Peirce: “I don’t think every customer wants the same thing. So I want to make sure we have a variety of payment models, and variety of levels of service.”

Barr reiterated that IAA has advocated for a new best-interest standard of conduct for broker-dealers that is no less stringent than the Advisers Act fiduciary standard, adding that an SEC fiduciary rule should not weaken the Investment Advisers Act of 1940. IAA, Barr continued, would like the SEC to come up with a separate rule under the Securities Exchange Act of 1934 that governs brokers.

“You should be careful what you ask for,” Peirce said. “When you ask for more regulation for some people, it means more regulation for you.”

Other fiduciary rulemaking goals could also likely involve “more clarity on what standard broker-dealers are operating under,” Peirce said, as well as “more guidance on the investment advisor side.”

Fiduciary “is a great word, but there’s a lot behind that word,” Peirce said, adding that the agency may consider putting out guidance “on what fiduciary means.”

It’s also “been very clear,” Peirce said, that there has been investor confusion surrounding the broker-client and advisor-client relationship. Her hope: that the agency can “come up with something that helps people better understand what their relationship is” with their financial professional.

State securities regulators also “have a very important view” on the fiduciary topic, Peirce said.  “It’s not that every regulator will be approaching everything [regarding fiduciary] in the same way, but we can come together on a more coordinated approach.”

As to advisor exams, Peirce said that she’s “optimistic” that the agency is seeing “real progress” in the agency’s Office of Compliance Inspections and Examinations’ stepped-up exam program.

While she’s open to the idea of third-party audits to complement SEC exams, “it’s not the time to take that on,” Peirce said, adding that “she’s not in favor” of giving the Financial Industry Regulatory Authority more authority to conduct advisor exams. “I think they’ve backed off on being the SRO” for advisors, she said. “My main concern is that FINRA is about rules and advisors are about principles.”

— Check out Is the Time Ripe for the SEC to Regulate Broker/Advisor Titles? on ThinkAdvisor.


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