No fiduciary rule better than bad one, NAPFA official says

The financial advisory business and the Securities and Exchange Commission would be better off if the SEC did not propose a uniform standard for investment advice, rather than offering one that dilutes the concept of acting in a client's best interest. At least according to the National Association of Personal Financial Advisors. Karen Nystrom, NAPFA's public policy and advocacy manager, said that the organization is concerned about the parameters of a potential fiduciary-duty rule that are outlined in a document the SEC released earlier this year to gather data for a cost-benefit analysis. “The possibility is that NAPFA and the [Financial Planning Coalition] could recommend no action if the assumptions in the request for information remain unchallenged,” Ms. Nystrom told an audience today at a NAPFA conference in Las Vegas. The coalition is composed of NAPFA, the Financial Planning Association and the Certified Financial Planner Board of Standards Inc. The groups are wary of the SEC's March 1 information request because it contains a set of guidelines about fiduciary duty. Potential respondents are told how a uniform standard might work so that they can provide data on its potential market impact. For instance, the document says that a uniform standard would allow brokers to continue charging commissions, selling from a menu of proprietary products and engaging in principal trading, and would not subject them to a continuing duty of care or loyalty to a retail client. Another assumption in the SEC release is that the application of the standard of care could be determined in a contract. Several of the parameters reflect provisions of the Dodd-Frank financial reform law, which gives the SEC the authority to create a fiduciary-duty rule. The law states that the standard should be no less stringent than the one advisers already meet — that they always must act in the best interest of their clients. Brokers are required to ensure that products they sell to clients are suitable. Ms. Nystrom said the SEC could be poised to lower standards for investment advisers rather than raise them for brokers. “We would have a fiduciary standard that acts like a suitability standard,” she said. Several times in the information-request document, the SEC states that it is not bound by the fiduciary model it outlined. “To be clear, the discussion of these potential approaches — including the identification of particular assumptions or alternatives — does not suggest our policy view or the ultimate direction of any proposed action by us,” the SEC release states. Comments on the information request are due July 5.