Fiduciary proposal seen coming, adviser SRO seen slipping into oblivion

Industry bigs expect the SEC to release concept for single standard of care this summer; no such timeline for self-regulator

Feb 1, 2013 @ 2:14 pm

By Dan Jamieson

Fiduciary standars, SRO, SEC
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From Congress to SEC: SRO bill lost in transition ((Photo: Bloomberg News))

The Securities and Exchange Commission is expected to issue a concept release perhaps as early as this summer on how to establish a uniform fiduciary duty for brokers and advisers. But a Congressional call to establish a self-regulator for advisers appears to be on a fast track to nowhere.

Skip Schweiss, managing director of adviser advocacy & industry affairs at TD Ameritrade Institutional, told InvestmentNews that the SEC could have a concept release this summer, asking for comment on how a fiduciary standard would work and the best ways to perform a cost/benefit analysis.

“We wouldn't expect that [release] to come out before the new commission is in place” under Mary Jo White, whose nomination as chairman is pending, said Kevin Carroll, associate general counsel at the Securities Industry and Financial Markets Association, during a media briefing Friday at the TD Ameritrade Institutional conference in San Diego.

That means the release would probably come in the second or third quarter of the year, Mr. Carroll said.

“We are working on a request for information … but have not determined timing,” said SEC spokesman John Nester in an email.

The SEC was directed under section 913 of the Dodd-Frank financial reform law to consider implementing a fiduciary standard for anyone giving personalized financial advice, with protections equal to the Investment Advisers Act of 1940.

The brokerage and advisory industries have been arguing about how to define such a standard.

“Congress has given the SEC a virtually impossible task,” Mr. Schweiss said. “How do you make a fiduciary out of brokers who sell products?”

Kevin Keller, chief executive of the Certified Financial Planner Board of Standards Inc. faulted Sifma for proposing what he feels is a brand new standard. “We think it's better to start with what we have [with the Advisers Act] and build from there,” he told reporters Friday.

“I really think it means no more than a true and actual fiduciary standard,” Mr. Carroll said. “There are no gradations of a fiduciary standard. It would be uniform.”

Ron Rhoades, president of ScholariF Inc., told reporters that different fiduciary standards do exist, and that the brokerage industry would have to figure out how to address compensation issues, soft dollars and shelf-space fees.

“Those things are very problematic with a fiduciary standard,” Mr. Rhoades said. “Those are the types of issues that need to be discussed in detail.”

The solution will be implementing disclosures, client consents, training and compliance systems for managing the conflicts inherent in the brokerage business, Mr. Carroll said.

Mr. Schweiss is concerned about a fiduciary standard riddled with exemptions for the brokerage industry, “but we have to move forward on this,” he said in an interview late Thursday.

On the issue of an adviser SRO, observers don't expect much if any Congressional action this year, since the idea has encountered bipartisan opposition.

Mr. Schweiss is planning a series of fiduciary summits, the first in June in conjunction with TD Ameritrade's Elite conference for top advisers, to be held in West Palm Beach, Fla., and another one six to 12 months later in Washington D.C.

“What we're trying to do is find a way forward” on the fiduciary issue, Mr. Schweiss told InvestmentNews. “We're trying to get a spectrum of voices together on this.”

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