SEC IM director Dalia Blass. SEC IM director Dalia Blass. (Photo via Securities and Exchange Commission)

Two Securities and Exchange Commission officials went toe-to-toe Wednesday on whether there’s “magic” in the term fiduciary.

During a question and answer session at a Regulation Best Interest seminar held by the Securities Industry and Financial Markets Association at WilmerHale in Washington, Brett Redfearn, director of the SEC’s Division of Trading and Markets, said that while the agency “talked about a uniform standard” for brokers and advisors while crafting its four-pronged advice-standards package, “it became very clear to me in the early stages these are different forms of advice” offered by advisors and brokers. “There was no magic in the term fiduciary,” Redfearn said, adding that it “was not clear that everybody had a clear understanding of what fiduciary meant.”

Dalia Blass, head of the SEC’s Division of Investment Management, countered, however, that “the term fiduciary is magic for us in Investment Management,” adding that fiduciary “does mean something … people knew it was a big word and important but had difficulty in describing what it is.”

Blass stated that while the agency decided not to use “the legal word” fiduciary in the rulemaking, “that doesn’t mean we’re not adhering to it” in practice.

But Reg BI and the Investment Advisers Act fiduciary standards “are different standards; different models for different regulatory regimes,” she said, noting that the agency preserved “choice” in its advice-standards package.

During a separate question and answer session with SEC Commissioner Hester Peirce, SIFMA General Counsel Ira Hammerman asked Peirce if the BD standard under Reg BI is “higher now” than a fiduciary standard.

Peirce responded: “They are both good standards and they are different. And they’re different for a reason. You could argue [Reg BI] is a more intense standard than a fiduciary standard which is tailored to the specific relationship.”

Added Peirce: “I’ve never been a fan of the term ‘best interest.’ … If we just tell them [investors] to rely on a standard of care and you’re fine, I don’t think that’s good … you want your clients to be asking you questions.” The standards “on both sides are solid, good standards.”

Ken Bentsen, SIFMA’s president and CEO, stated during his opening remarks at the event that Reg BI “will impose a materially heightened standard of conduct for broker-dealers when serving retail clients. In fact, it could be argued that this is the most significant enhancement of the standards since the adoption of the [Securities Exchange] Act of 1934.”

Blass noted that the Interdivisional Standards of Conduct Implementation Committee at the SEC is already hard at work providing assistance on compliance with the advice-standards package. “Adoption did not end the work … This is a pretty complex rulemaking package,” Blass said.

Questions for the committee can be directed to IABDQuestions@sec.gov.

Redfearn added that as the agency accumulates “thematic” questions regarding the advice-standards package, the agency will contemplate issuing FAQ guidance.

The most popular question being asked now, he quipped, is: ”What is the link to the rule?”

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