Fiduciary duty has legs but adviser SRO lame

Feb 3, 2013 @ 12:01 am

By Dan Jamieson

The Securities and Exchange Commission is expected to issue a concept release as early as this summer on how to establish a uniform fiduciary duty for brokers and financial advisers.

But a congressional call to establish a self-regulatory organization for advisers appears to be on a fast track to nowhere.

The SEC could be ready this summer to ask for comments on how a fiduciary standard would work and the best ways to perform a cost/benefit analysis, Skip Schweiss, managing director of adviser advocacy and industry affairs at TD Ameritrade Institutional, said in an interview.

“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, Kevin Carroll, associate general counsel at the Securities Industry and Financial Markets Association, said Friday during a media briefing at TD Ameritrade's national conference in San Diego.

That means that the release probably will be made public in the second or third quarter, he said.

“We are working on a request for information ... but have not determined timing,” SEC spokesman John Nester wrote in an e-mail.

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 those contained in 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., faults SIFMA for proposing what he thinks 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.

“I really think it means no more than a true and actual fiduciary standard,” Mr. Carroll responded.

“There are no gradations of a fiduciary standard. It would be uniform.”

Different fiduciary standards do exist and the brokerage industry would have to figure out how to address compensation issues, soft dollars and shelf-space fees, Ron Rhoades, president of ScholarFi Inc., said at the media session.

“Those things are very problematic with a fiduciary standard,” he said.


The solution will be implementing disclosures, client consent declarations, 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 last Thursday.

Observers don't expect much congressional action this year on the issue of an adviser SRO, as the idea has met 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.

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


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