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June 27, 2018 at 01:00 PM
Debate about the Securities and Exchange Commission’s advice standards proposal hit full throttle in mid-June as the Commission held its first town hall in Altanta, and the agency’s Investor Advisory Committee followed-up with its own meeting in the Georgia capital.
While still in its formative stages, SEC Chairman Jay Clayton told Senate lawmakers in early June that while the agency is going to “take at least the 90 days” for comments on the three-pronged advice standards package, until Aug. 7, he’s “not going to take forever. This [fiduciary] issue has been out there a long time, and I think it’s time to bring a focal point for the many regulators in this space.”
We’ll have to see if the Aug. 7 deadline sticks, as consumer groups are urging Clayton to extend the comment deadline for the regulator’s “sweeping” Regulation Best Interest for brokers and Customer Relationship Summary, or Form CRS, to allow enough time to test the new disclosures on investors and report the results.
Barbara Roper, director of investor protection for the Consumer Federation of America, one of the groups that asked Clayton for an extended comment period, told me at press time in mid-June that she had not received a formal response from the Commission.
“The only informal response I’m aware of is that the SEC routinely accepts comments after the comment deadline has passed,” Roper said. “I think the key issue here is not whether the Aug. 7 deadline is extended, but that the SEC should commit to making the results of the testing public, and providing an opportunity for stakeholders to comment on those results, before taking any action on either Form CRS or Reg BI.”
Broker Behavior Will Change Under Reg BI Clayton laid out for attendees how he sees brokers’ behavior changing under Reg BI at the town hall, dubbed “Investing in America, the SEC Comes to You,” which was held at Georgia State University College of Law.
(The SEC is planning to hold other town halls to discuss its advice standards proposal in Denver, Houston and Miami.)
Under the suitability standard that brokers must follow, “if you come up with two investments that are suitable for your client, there are people who will argue that you’re allowed to look at which investment makes you, the broker, more money and put the client into that investment,” Clayton relayed.
“Under our new standard, you [the broker] will not be allowed to do that. You cannot put your interests ahead of your clients’ interest,” he continued, adding that the agency is “going to add to that. This is a proposal … we all have views, we want your views.”
The securities regulator, under its conduct standard for brokers, is “going to require policies and procedures so that the exercise the broker-dealer goes through to get to that place, where they’re going to make a recommendation, also reflects a duty of care that is enhanced,” Clayton said.
Is a ‘Uniform Fiduciary Standard’ Likely? Industry officials debated the likelihood that a “uniform fiduciary standard” for brokers and advisors would ever see the light of day during the mid-June meeting of the SEC’s Investment Advisory Committee, which was held in Atlanta a day after the SEC’s town hall.
CFA’s Roper, a member of the SEC committee, asked a panel at the meeting if they would “be comfortable, since we have the apparent agreement that this [Reg BI] is intended to be, in essence, a fiduciary standard, if the commission called it a fiduciary standard?”
Karen Barr, president and CEO of the Investment Adviser Association, responded that “to me, a fiduciary standard means you’re a fiduciary throughout the entire relationship, so I don’t think this [Reg BI] is a fiduciary standard. I do think [Reg BI] draws on fiduciary principles and it can get to a place where it’s as robust — [having] the core principles as a fiduciary standard.”
