Financial advisers should rethink the way that they disclose information to clients, and investment firms should review and debate possible sales conflicts regularly, Finra chief executive Richard Ketchum said last week.
Even before the SEC puts new rules in place that are expected to hold brokers and advisers to a uniform fiduciary standard, representatives and advisers should take steps to ensure that customer interests prevail, he said.
“We will have a single standard of care,” Mr. Ketchum said last Tuesday at a meeting of several hundred broker-dealer compliance professionals in Washington. “The question is the implementation.”
A Securities and Exchange Commission report last month proposed various ways to strengthen the regulation of advisers. One 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 SEC has the authority under the Dodd-Frank financial reform act to come up with the standard. SEC Chairman Mary Schapiro, who also spoke at last week's meeting, said that she has “long believed” that there should be a single standard of care.
AVOIDING CONFLICTS
A uniform fiduciary standard would require anyone giving personalized financial advice to understand “the conflicts and incentives of the firm that salespersons and financial advisers have” and avoid those conflicts when possible, Mr. Ketchum said.
When those conflicts can't be avoided, firms should “disclose them on a full basis in a way that there is clear understanding from the standpoint of investors,” he said.
Improved disclosure would include easy-to-understand documents that are to be provided when investment decisions are being discussed, Mr. Ketchum said.
Firms also should have web-based systems to allow clients to “drill down” and find more-detailed information about benefits and risks, he said.
Ultimately, the adviser should be able to “sit and confidently write down on a piece of paper” why clients are in each investment, Mr. Ketchum said.
On a related note, Norm Champ, deputy director of the SEC's Office of Compliance Inspections and Examinations, told attendees that the commission is finalizing a national exam manual that it will make public. The manual is intended to end concerns that adviser exams aren't conducted consistently in different regions of the country, he said.
E-mail Liz Skinner at [email protected].
