Washington INsider

Washington INsiderblog

Mark Schoeff Jr. looks at what's really happening on Capitol Hill - and the upshot for advisers.

SEC commissioners keep tweaking fiduciary-duty cost request

Attention to detail highlights political sensitivity

Feb 22, 2013 @ 3:05 pm

By Mark Schoeff Jr.

+ Zoom

A year ago, the Securities and Exchange Commission said it would assess the costs of a potential rule that would raise investment-advice standards for brokers. One reason that a request for data has not yet been released is because SEC commissioners keep tweaking it.

“It's about ready for prime time,” SEC member Luis Aguilar told reporters on the sidelines of a Practising Law Institute conference in Washington on Friday.

Last week, SEC Chairman Elisse Walter told the Senate Banking Committee that the cost-benefit-information query would go out “in a month or two.”

First it has to pass muster with the current four-member SEC. The document has circulated several times to each of the commissioners. Instead of achieving the necessary number of sign-offs, however, it is continuously modified – sometimes by just a few sentences at a time.

“The merry-go-round has not yet stopped,” Mr. Aguilar said. “I have seen versions that I would be happy to approve, but they keep changing it and tinkering with it.”

The cost-benefit analysis is a key step in the long road toward a rule that would impose uniform fiduciary duty for retail investment advice and, possibly, harmonize regulations governing investment advisers and brokers.

The Dodd-Frank financial reform law gave the SEC the authority to proceed with rulemaking – something also recommended by a 2011 SEC study in order to better protect investors who are confused by the differing advice standard advisers and brokers must meet. Advisers have to act in the best interest of their clients. Brokers meet a less stringent suitability standard that requires them to sell products that meet a client's investment needs and risk tolerance.

Skeptics of fiduciary duty have been urging the SEC to be careful in implementing such a rule, if it decides to move ahead. They say that a flawed rule could raise regulatory and liability costs for brokers, driving them toward the fee-based model and limiting advice choices for investors.

The SEC has not moved on the rule for more than two years in part because it has nearly 100 mandatory Dodd-Frank rules to implement. Fiduciary duty is optional.

Another obstacle is tension over a potential rule.

After last week's Senate hearing, Ms. Walter acknowledged there is a difference of opinion on the commission about the potential market impact of uniform fiduciary duty.

“I don't know that I would characterize it as [a] deep [disagreement],” Ms. Walter said. “I think we all come at it from slightly different angles.”

The catch with the cost benefit analysis is that it may be presented as something like a concept release. In an attempt to obtain as rich a trove of cost information as possible, the SEC might outline how uniform fiduciary duty might work. That raises the stakes for the cost document and may be contributing to the delay in releasing it.

“It's an issue that's very important to me,” Ms. Walter told reporters at Friday's PLI conference. “Many things take longer than we would like them to, and we have a rather full plate. But we're actively at work on that.”

But it may take a few more iterations to get the cost-benefit analysis document out the door.


What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video


The Fuse impact: The judges weigh in

When vying for top honors at Fuse, it all comes down to a panel of judges. Hear directly from them on what they're looking for in finalists, and what gets them excited about this event every year.

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

10 best financial adviser jokes

How many financial advisers does it take to screw in a lightbulb?

With margins crashing, broker-dealers look to merge: report

Increased regulation is straining profit margins among broker-dealers, sending many of them into the arms of their bigger brethren.

Hackers may have profited from SEC breach

The hack of the agency's Edgar filing system occurred in 2016, but the regulator didn't conclude until last month that the cybercriminals may have used their bounty to make illicit trades.

Top 10 financial firms ranked by investor satisfaction

Find out which firm took the top slot for overall investor satisfaction for the second year in a row.

What not to say to clients when the markets drop

Here's what advisers should steer clear of saying the next time stocks turn downward.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print