Surprise! Fiduciary advocate calls Finra best hope for progress

Roper sees little action coming from SEC

Sep 5, 2012 @ 5:23 pm

By Mark Schoeff Jr.

A leading advocate for raising investment advice standards expressed frustration at the Securities and Exchange Commission's tortoiselike pace in proposing a regulation that would impose a fiduciary duty on brokers — and said that Finra might do a better job of instituting tougher rules.

Barbara Roper, director of investor protection at the Consumer Federation of America, said that the fiduciary duty rule “seems to have become less and less relevant” at the SEC, as the commission struggles with the workload imposed by the Dodd-Frank financial reform law, which, along with dozens of new mandatory regulations, gives the SEC the option to promulgate a universal fiduciary standard.

“We see little if any sign that the agency is ready to move forward on an issue that Chairman [Mary] Schapiro once identified as a priority,” Ms. Roper said Wednesday during a media briefing sponsored by the Institute for the Fiduciary Standard.

Given the sclerosis at the SEC, Ms. Roper said that the Financial Industry Regulatory Authority Inc. is in a better position to make progress on investment-advice standards. She cited the self-regulatory organization's recent revisions to the suitability rule that governs the sales of financial products to clients by its registered-representative members.

Finra moved the suitability guidelines closer to the fiduciary standard that requires investment advisers to act in the best interests of clients.

The SEC has yet to put out a request for data for the cost-benefit analysis that must be completed before a fiduciary duty rule — even though observers have been expecting movement on the issue for months.

“That leaves, ironically, Finra as the best hope for investors in this area,” Ms. Roper said.

The commission has, however, developed an outline of elements of a potential rule — similar to a concept release — that would serve as the foundation for a cost-benefit data request. The document is being circulated among the five SEC members for approval of a public release.

Ms. Roper said she and other fiduciary advocates may not like what they see in the cost-benefit analysis outline.

“We've been told that it focuses more on harmonization [of adviser and broker rules] than creating a true fiduciary standard for brokers,” Ms. Roper said.

An SEC representative did not immediately respond to a request for a comment.

The Dodd-Frank law gave the SEC the authority to promulgate a fiduciary duty regulation but did not require it to do so. The Securities Industry and Financial Markets Association, as well as the Consumer Federation of America, have submitted so-called fiduciary frameworks to the SEC.

The SIFMA proposal falls short of the kind of fiduciary duty that advisers follow, said Knut Rostad, president of the Institute for the Fiduciary Standard.

“SIFMA is basically championing conflicted advice,” Mr. Rostad said. “The standard being advocated by the largest Wall Street lobbying group is a sales/broker standard and not a fiduciary standard.”

In a statement, SIFMA general counsel Ira Hammerman argued that investment advisers haven't achieved purity in their client relationships.

“The notion that the [registered investment adviser] business model is completely conflict-free is a pipe dream,” Mr. Hammerman said. “All businesses, to some extent or another, have conflicts, and it's important to customers that those conflicts be disclosed and managed appropriately. We continue to believe that a new, uniform fiduciary standard should put investors' best interests first, but not at the expense of those investors' ability to choose the products, services and methods of payment that they feel are right for them.”

Although she doesn't agree with all of it, Ms. Roper praised SIFMA for proposing its fiduciary framework.

“I give SIFMA more credit than Knut does for being engaged in constructive conversation,” Ms. Roper said.

The Institute for the Fiduciary Standard has designated this month as “Fiduciary September,” in an effort to create momentum for the issue. Leaders of the organization will meet with Ms. Schapiro on Sept. 11.


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