InvestmentNews Editorials

Advisers should take SEC up on offer to waive penalties

This isn't exactly an amnesty program, but it's probably the closest thing

Feb 17, 2018 @ 6:00 am

Fans of golf know the sport as one in which participants call penalties on themselves. This is essentially what the Securities and Exchange Commission is now asking of financial advisers.

The commission's announcement last week, citing "widespread" lack of fee disclosures by advisers placing clients in higher-cost products when cheaper versions are available, is the latest example of the regulator asking advisers to step up before they get stepped on.

To encourage financial advisers to seize the moral high ground before it's too late, the SEC has sweetened the deal by agreeing not to impose monetary penalties against advisers who "self-report violations of the federal securities laws relating to certain mutual fund share classes and promptly return money to harmed clients."

It is a good offer, and any financial adviser currently violating the rules should jump at it. This isn't exactly an amnesty program, but it's probably the closest thing advisers are going to get.

If advisers haven't already noticed, the SEC is using whatever limited resources it has in making these kinds of violations a top priority.

As InvestmentNews senior reporter Mark Schoeff Jr. reported last week, despite tighter budgets, the SEC's use of data-driven initiatives makes it easier than ever to spot these kinds of violations.

It's not yet clear whether the Financial Industry Regulatory Authority Inc. will offer a similar self-reporting deal to brokers, but the agency has employed similar incentives to entice brokers to turn themselves in for failing to waive mutual-fund sales charges for eligible investors.

(More: If Finra eases firm oversight of outside business activities, broker-dealers could lose revenue)

We welcome any logical effort by regulators to help bring wayward brokers and advisers back in line.

But the bigger issue here is why, in this age of a heightened focus on fiduciary standards, some financial advisers still try to get away with such blatant rule violations?

If a higher risk of getting caught and an offer to do the right thing without facing a monetary penalty isn't enough to encourage an adviser to come forward, can you really call yourself a fiduciary?

In golf, a player typically calls a penalty on himself or herself after an unintentional rule violation. It is known as protecting the field, or in other words, acting as a fiduciary.

Likewise, in financial planning, which is neither a sport nor a game, the field needs protecting by advisers acting as fiduciaries all the time, not just when a regulator offers to relax the punishment for violations.


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