Financial advisers should rethink the way they disclose information to clients and investment firms should regularly review and debate possible sales conflicts, Finra chief executive Richard Ketchum said today.
Even before new rules are put in place that are expected to hold brokers and advisers to a uniform fiduciary standard, reps and advisers should take steps to ensure customer interests prevail, he said.
“We will have a single standard of care,” he said. “The question is the implementation.”
A Securities and Exchange Commission report last month proposed various ways to strengthen the regulation of financial advisers, one of which would designate the
Financial Industry Regulatory Authority Inc. as the self-regulatory organization for the registered investment adviser side — as well as for the broker side — of dually registered firms.
The commission has the authority under the Dodd-Frank financial reform act to come up with the standard. SEC Chairman Mary Schapiro said today that she has “long believed” there should be a single standard of care.
Mr. Ketchum said a uniform fiduciary standard will include understanding “the conflicts and incentives of the firm that salespersons and financial advisers have,” and avoiding those conflicts when possible.
When those conflicts can't be avoided, the Finra boss said firms should “disclose them on a full basis in a way that there is clear understanding from the standpoint of investors.” Improved disclosure would include easy-to-understand documents that are provided when investment decisions are being made, he said.
Firms also should have web-based systems to allow clients to “drill down” and find more detailed information about benefits and risks, Mr. Ketchum said.
At the end of the day, the adviser should be able to “sit and confidently write down on a piece of paper” why clients are in each investment, he said.
Ms. Schapiro and Mr. Ketchum made their remarks to a a meeting today of several hundred broker-dealer compliance professionals at the commission's Washington headquarters.
In a related note, Norm Champ, deputy director of the SEC Office of Compliance Inspections and Examinations, told attendees that the commission is finalizing a national exam manual that it will make publicly available. Mr. Champ said the manual is intended to end concerns that adviser exams aren't conducted consistently among different regions of the country.
