One of the groups meeting with the SEC during the second phase of its study on fiduciary duty believes that the agency is likely to promulgate a regulation imposing a universal standard of care for retail investment advice.
One of the groups meeting with the SEC during the second phase of its study on fiduciary duty believes that the agency is likely to promulgate a regulation imposing a universal standard of care for retail investment advice.
During the month of August, the Securities and Exchange Commission collected about 2,700 comment letters for a report on the oversight of investment advisers and broker dealers. The agency has also been sitting down with organizations on either side of the issue.
“It is apparent from these discussions that many at the SEC are intent on moving forward with rules to establish a fiduciary duty for broker-dealers providing investment advice,” Dale Brown, president and chief executive of the Financial Services Institute, wrote in an e-mail to InvestmentNews. “Our intent is to fully and constructively engage in the implementation of that duty so that unintended consequences are avoided and small investors have choice and access, as well as the protections provided by a uniform standard.”
Mr. Brown's organization visited SEC officials Sept. 28. It was one of 19 sessions the SEC has conducted with interest groups, banks, brokerages and insurance firms since Aug. 11. Each meeting — and its agenda — is listed on the agency's website (sec.gov/comments/4-606/4-606.shtml).
The information gathered from the sessions will be incorporated, along with the comment letters, in the study, which is due to Congress in January. The report was mandated by the Dodd-Frank financial-reform law, which also gave the SEC the authority to write a rule setting one standard of care for both investment advisers and broker dealers.
Currently, investment advisers must adhere to a fiduciary duty, which requires that they act in the best interests of clients and disclose all material conflicts of interest. Broker-dealers follow a less stringent suitability rule that says they must offer investment products that fit a client's needs, timeline and risk appetite.
For the most part, groups meeting with the SEC say that the agency is thorough and fastidious in its meetings but inscrutable about its intent on fiduciary duty.
“It's pretty clear to us that they have been looking at all the comment letters that have been filed,” said David Tittsworth, executive director of the Investment Adviser Association. “It was an active and engaging discussion. It's pretty hard to get a fair read on where the study will come out, much less whether and, if so, the shape the rulemaking will take.”
The agency does not shuffle visitors in and out and conduct pro-forma meetings, according to participants.
“They took a good deal of time with us,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “It was a very specific, detailed discussion on nitty-gritty issues.”
In its meeting with SEC Chairman Mary Schapiro on Sept. 23, the CFA emphasized “the need to correct past agency misinterpretations of IA/B-D issues … the mandate for moving forward with rules ... [and] the importance of maintaining the Advisers Act's principles-based approach to fiduciary duty,” according to the agenda it submitted.
“Mary was very receptive to the points we made,” Ms. Roper said.
The Securities Industry and Financial Markets Association has had the most SEC meetings over the last several weeks. The group has trekked to the SEC's Capitol Hill headquarters four times to meet with three different commissioners and the staff of the Division of Trading and Markets.
“We've continued to express to SEC staff our support for a well-defined fiduciary standard of care that is uniformly applied and enforced, [and] protects individual investors while preserving investor choice when personalized advice is provided,” Andrew DeSouza, a SIFMA spokesman, wrote in an e-mail.
SIFMA would not go into the details of its meeting, but the agenda it submitted for one of the visits clearly outlined the arguments it intended to make: “Broker-dealers should be able to disclose material conflicts of interest and obtain retail-customer consent in a way that would not in practice foreclose retail-customer access to … proprietary products or products sold on a principal basis and … advice regarding aggressive investment strategies.”
The SEC has assigned a core staff of 12 to 15 people to the fiduciary study, according to an SEC official, who requested anonymity when discussing internal agency workings.
The agency “is committed to making sure someone from our team reads every letter,” the staff member said. They glean the substance from each letter — and presumably each meeting — and put it into a chart that illustrates the various fiduciary-duty arguments.
