Disclosure not the solution for a fiduciary standard, industry reps agree

Executives representing RIAs and brokers said they expect to see the SEC come up with a proposal this year, but not adoption

Feb 2, 2018 @ 2:21 pm

By Jeff Benjamin

Representatives from both the brokerage industry and the registered investment advisory side of the advice business expect the Securities and Exchange Commission to produce some kind of proposal this year for a fiduciary standard for brokers.

And both agreed that simply requiring brokers to disclose potential conflicts of interest will not satisfy the need for an effective fiduciary standard.

The topic was the focus of a panel discussion at TD Ameritrade Institutional's LINC 2018 conference in Orlando on Friday.

"Our position is, you cannot disclose away your fiduciary duty," said Karen Barr, CEO of the Investment Adviser Association. "Disclosure does not absolve you from acting in the best interest of your client. If the SEC cannot come up with a standard for broker-dealers that is robust enough that brokers giving advice should act in best interest of clients, then brokerage reps should not hold themselves out as financial advisers."

"We think the path forward is to focus on a best-interest standard for broker-dealers," said Kevin Carroll, managing director and associate general counsel at the Securities Industry and Financial Markets Association, whch represents brokers. However, he said he opposed the idea of having titling requirements. "You could think of an infinite number of titles a broker could fall back on," he said.

"Our current position is we would like to see the SEC address this just under the 1934 Act for broker-dealers, and leave Investment Advisers Act alone," said Ms. Barr.

"We believe an SEC best-interest standard could form the basis for relief from the DOL rule," said Mr. Carroll. "We are hoping the DOL rule will be stricken in its entirety."

Although they expect the SEC to come forward with a proposal, netither thinks that any real action beyond triggering "hundreds or thousands" of comment letters will come of it.

Knut Rostad, president of the Institute for the Fiduciary Standard, attended the session and said he is worried the direction the SEC is taking.

"I think the SEC is going to act sooner rather than later, but I'm fearful that the SEC has focused so much on disclosure," he added. "That's worrisome, in terms of what we might see. A disclosure-based regime is just a very small piece."

Tom Nally, TD Ameritrade Institutional president, who did not sit in on the session, commented afterward that the issue is less about writing new regulations than it is about enforcement of existing regulations.

"It's not that the regulations are broken, it's the enforcement of the rules that's the problem," he said. "Our enforcement agencies have allowed people to present themselves as advisers but not required them to be registered under rules for advisers. That has caused these endless debates."

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