WASHINGTON BUREAU — Financial planners fear that the U.S. Securities and Exchange Commission (SEC) may propose something less than a full fiduciary standard for sellers of retail investment products.
The SEC is supposed to comply with a standard-of-care study provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act by giving Congress a report on the topic by Jan. 21. In the report, the SEC will outline its plans for dealing with the current regulatory differences in the treatment of advisors and brokers.
Today, advisors must abide by a fiduciary standard, which requires advisors to put clients' interests ahead of their own.
Broker-dealers, and life agents who sell securities, must abide by a suitability standard, which requires them to verify that the products sold to consumers appear to suit the needs of the consumers.
Kurt Rostad, chairman of the Committee for the Fiduciary Standard, Falls Church, Va., said in an interview that he fears the SEC will propose a standard for broker-dealers that will simply require agents and brokers to tell clients about possible conflicts of interest.
"Our concern is that the securities industry is lobbying forcefully for having disclosure alone suffice to address a material conflict of interest," Rostad said.
Rostad said advisors believe conflicts should be mitigated, not merely disclosed. "The standard must be that the transaction must always be in the best interest of the client," he said.
The Committee for the Fiduciary Standard has made the same argument in a comment letter submitted to the SEC.
Terry Headley, president of the National Association of Insurance and Financial Advisors, Falls Church, Va., said he thinks a uniform fiduciary standard policy could open agents and brokers up to litigation based on second-guessing about investments years after sales were completed.
"The practical application of a fiduciary standard in the marketplace is critical," Headley said. "To us, 'fiduciary duty' is a legal relationship. Within a legal relationship, there are certain liability risks."
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