Although the Securities and Exchange Commission launched its study of fiduciary requirements amid a flood of public input, another Washington agency has quietly begun examining a different topic that could have an equally profound influence on the financial advice business.
Like the SEC, the Government Accountability Office has been given a lengthy to-do list under the sweeping Dodd-Frank Act that was signed into law in July.
Among the 44 studies that it must conduct in the next year is a sweeping review of “the effectiveness of state and federal regulations to protect investors and other consumers from individuals who hold themselves out as financial planners through the use of misleading titles, designations or marketing materials” and to evaluate “current state and federal oversight structure and regulations for financial planners ... [and] legal or regulatory gaps.”
The provision goes on to list eight other points that the review must cover, including the role of financial planners in providing advice regarding investments, income tax, education and estate planning, and risk management, and “whether current regulations at the state and federal level provide adequate ethical and professional standards for financial planners.”
A former SEC official was surprised by the number of studies that have been assigned to the GAO in areas where the SEC also has expertise.
“Maybe Congress felt another agency may be a little more objective and less defensive,” said Laura Anne Corsell, a partner at Montgomery McCracken Walker & Rhoads LLP and a former attorney in the SEC investment management division.
The question is: Will the GAO study steal the thunder from — or worse, undercut — the SEC's much-anticipated examination of the differences or gaps between the regulatory regimes applied to financial advisers and brokers?
The SEC's report could set the stage for the promulgation of a universal standard of care for retail investors. Or the SEC could choose to maintain the status quo, which holds brokers to a less onerous suitability standard.
The GAO and the SEC are supposed to submit their results to Congress in January.
The SEC's report will take into account 2,500 public remarks received during a 30-day comment period. Massive campaigns orchestrated by industry groups seeking to influence the SEC were responsible for most of the remarks.
By contrast, the GAO's process will be a much more private affair. The agency doesn't formally request public comment.
Its study team interviews dozens of interest groups and experts, and conducts other analyses. And in this instance, its findings will almost certainly lead to hearings — and could shape legislation that would create a federal regulator to oversee financial advisers.
It is possible that the SEC also could have conducted the review, but some observers think the GAO will take a step back and take a more dispassionate look at the issue.
“The GAO lends some credibility to the objectivity of it, which is not to say the SEC can't be objective,” said Dan Barry, managing director of government relations and public policy at the Financial Planning Association. “This is someone taking a fresh look without any history that could color their judgment.”
The GAO is often the preference of members of Congress who want to wield influence in an area. Sen. Herb Kohl, D-Wis., chairman of the Senate Special Committee on Aging, and Rep. Michael Capuano, D-Mass., a member of the House Financial Services Committee, pushed for it to conduct the study.
The results and recommendations are hard to predict.
“The GAO could come out either way,” Mr. Barry said. “It's kind of open-ended.”
The FPA, with Mr. Kohl as an ally, had advocated language in the financial reform bill that would have implemented a financial planner oversight structure. That language wasn't included in the final bill, and the FPA had to settle for the GAO study.
The Investment Adviser Association is skeptical of greater regulation for financial planners. The group is confident that the GAO will conduct an even-handed assessment, said executive director David Tittsworth.
“They're in the business of doing just this type of thing,” he said, adding that he and his colleagues have already spoken to the GAO team that is conducting the study.
“We see our role as supporting Congress,” said Rick Hillman, managing director of the GAO financial markets and commercial investment team. The GAO mission is to provide “fair, balanced, fact-based information and analysis to support their policymaking process,” he said.
E-mail Mark Schoeff Jr. at [email protected].
