Two members of the Securities and Exchange Commission today called for harmonizing regulations of broker-dealers and investment advisers.
“As we enter a period of increased momentum for legislative action, one area to watch closely is the regulation of broker-dealers who provide investment advisory services,” Luis Aguilar said in addressing the “SEC Speaks” conference in Washington, sponsored by the Practicing Law Institute of New York.
“It is a fundamental and long-standing principle recognized by Congress, the Supreme Court, the commission and the industry that all investment advisers are fiduciaries and, as such, must avoid conflicts of interest with clients,” he said.
“Today, as broker-dealers increasingly provide advice to their clients, we should consider whether the higher standards and fiduciary duties of advisers should also be applied to these broker-dealers,” Mr. Aguilar said.
Investment advisory groups have called for requiring all advisers to come under fiduciary standards, which require that clients’ interests be put ahead of those of advisers.
Reform is needed to address the regulation of financial intermediaries such as broker-dealers, investment advisers and insurance agents, commission member Elisse Walter said.
“Currently these intermediaries are regulated under different statutes, sometimes by different regulatory bodies, even though they provide similar products and services to investors,” she said.
“When your Aunt Millie walks into the local financial professional to ask for advice, she has no idea, nor should she, which set of laws governs the conduct of the person on the other side of the table,” Ms. Walter said.
“What she does need to know is that no matter who it is or what product they are selling, she will receive a comparable level of protection. I don’t think we can give Aunt Millie that assurance today.”
Ms. Walter, like new SEC Chairman Mary Schapiro, came to the agency from the
Financial Industry Regulatory Authority Inc. of Washington and New York, which has called for harmonizing broker-dealer/investment adviser regulations.
She also said that while she supports efforts to address systemic risk in the markets, “This should neither erode the central role that the commission plays in protecting investors nor confine its role to a retail-sales-practice perspective.”
The Bush administration last year suggested that the
Federal Reserve take over the role of systemic risk protector, while the SEC should serve primarily as an agency that protects retail investors.
“To do our job of protecting investors well, it is critical that we continue to have comprehensive market knowledge and the ability to oversee the risk management practices of those firms dealing with the investing public,” Ms. Walter said.
