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SIFMA wants SEC to move on fiduciary rule PDQ

Jan 16, 2013 @ 2:58 pm

By Mark Schoeff Jr.

SIFMA, SEC, fiduciary standard
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Outgoing SIFMA chief executive T. Timothy Ryan. (Bloomberg)

Leaders of one of the most influential Wall Street lobbying organizations have called on the Securities and Exchange Commission to move ahead this year with a regulation that would force investment advisers and brokers to meet the same standard of care for investment advice.

“We think it's time to put this issue on the front of the table and have a constructive dialogue and come to a resolution so we can eliminate the uncertainty, and we're supportive of engaging this as soon as possible,” T. Timothy Ryan Jr., president and chief executive of the Securities Industry and Financial Markets Association, said during a meeting with reporters on Wednesday.

The Dodd-Frank financial reform law gave the SEC the authority to promulgate a rule that would subject brokers to the same fiduciary standard for retail investment advice that investment advisers must now meet. Currently, brokers adhere to a less stringent suitability standard.

A potential uniform fiduciary duty rule has been stalled at the SEC for two years.

During SIFMA's state-of-the-industry briefing, Kenneth E. Bentsen Jr., SIFMA's executive vice president for public policy and advocacy, said that the SEC during the first quarter will issue a request for information for a cost-benefit analysis related the fiduciary rule. That document might take the form of a concept release, which would foreshadow the elements of a potential regulation.

Mr. Bentsen acknowledged that progress on fiduciary duty will have to overcome a big political obstacle. With the departure of former Chairman Mary Schapiro, the SEC is currently missing a member and is split 2-2 along party lines.

“How it plays out to get a fifth commissioner and all that has to be dealt with, but I think there is a will in the commission and among our members to do this,” Mr. Bentsen said.

The SEC has not scheduled a release date for the fiduciary-duty cost-benefit analysis.

SEC Commissioner Daniel Gallagher said that the cost-benefit analysis would be “easy to prioritize,” if SEC Chairman Elisse Walter chose to do so because of the amount of work SEC staff has put into developing a rule.

But Mr. Gallagher cautioned that the commission should proceed carefully.

“It's not mandated [by Dodd-Frank],” Mr. Gallagher said during an appearance on Wednesday at the U.S. Chamber of Commerce. “We should be very deliberative. I'm not convinced we should do anything in this space under our [Dodd-Frank Section] 913 authority.”

In a document released last week, SIFMA listed the fiduciary-duty rule as one of its top three priorities for 2013. SIFMA's openness toward a uniform standard has heartened some fiduciary advocates, who said that it shows that Wall Street is amenable to raising the bar for brokers.

But SIFMA is careful to point out that that a uniform standard should be sensitive to the characteristics of the brokerage industry and should not subject brokers to the 1940 Investment Advisers Act.

“It's a difficult and complex equation to solve in reality, and that's why it's not already done but on a conceptual level, SIFMA agrees,” said Chet Helck, SIFMA's chairman, and chief executive of Raymond James Financial Inc's Global Private Client Group.

Mr. Helck said that brokers today wear multiple hats — sometimes advising clients on investments and sometimes selling investment products.

“Those would maybe be different standards for different services provided, but if others were providing a similar one, then the standards should be the same,” Mr. Helck said.

SIFMA is recommending that the SEC focus on disclosure requirements in a fiduciary-duty rule.

“We would hope that the SEC's … final rule on uniform fiduciary standard of care is one that respects investor choice, balanced with investor protection … [and] deals, as they have historically, with a disclosure-based regime,” Mr. Bentsen said.

One fiduciary advocate, however, is wary of SIFMA's emphasis on disclosure.

“Everyone knows disclosure alone often doesn't cut it,” said Knut Rostad, president of The Institute for the Fiduciary Standard and compliance officer at Rembert Pendleton Jackson Investment Advisors. “The '40 Act requires that recommendations meet a higher standard — in the client's best interest. Best interest means that informed consent may be required or the transaction cannot be completed.”

Although SIFMA is keeping an open mind on an SEC fiduciary rule, it is adamantly opposed to an effort by the Labor Department to expand the definition of “fiduciary” under federal retirement law for anyone providing investment advice for retirement products.

The department withdrew its proposed rule in September 2011 amid fierce industry protest that it would subject individual retirement account sales to fiduciary duty for the first time and prohibit commissions, potentially driving brokers out of that market.

“It's a unilateral action on their part, we believe, without appropriate study of the need to do so,” Mr. Bentsen said.

A Labor Department spokesman was not immediately available for comment.

Mr. Bentsen will replace Mr. Ryan as SIFMA's chief executive Feb. 23.

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