The Securities and Exchange Commission is not forecasting much activity over the next year on the issue of raising investment-advice standards for brokers, while it is trying to eke out more examinations of registered advisers, according to the agency's annual financial report.
In
the report, the SEC said it has proposed or adopted 90% of its required rules from the Dodd-Frank financial reform law. The law gave the agency the authority — but not a mandate — to propose a rule that would force brokers to act in the best interests of their clients, a standard that currently applies to investment advisers, but it
has not exercised that option. The annual report did not make clear whether it will do so in fiscal 2015, which began on Oct. 1 and concludes Sept. 30, 2015.
“In FY 2015, the SEC will strive to advance the final rules required to build a more stable and transparent financial system by … evaluating recommendations from a staff report to consider a uniform fiduciary standard of conduct for investment advisers and broker-dealers when providing personalized investment advice to retail investors about securities,” the report states.
The report says the agency also will consider “ways to better harmonize the regulatory requirements of investment advisers and broker-dealers when they are providing the same or substantially similar services to retail investors.”
SEC Chairman Mary Jo White has said one of her priorities for this year is to push the five-member commission to a decision on whether to pursue a fiduciary-duty rule or take some other action to reform investment advice.
In a Nov. 10 appearance at the Securities Industry and Financial Markets Association annual meeting in New York, she did not say when the SEC would make up its mind. She did promise that she would
make her own view known in the “short term.”
The annual report also revealed that the SEC has modestly improved its oversight of registered investment advisers. It had planned in fiscal 2014 to examine 9% of the approximately 11,000 investment advisers registered with the agency. Instead, it examined 10%, and said it “exceeded” expectations.
The report said examinations of broker-dealers in fiscal 2014 reached 49% of the approximately 4,125 brokerages registered with the Financial Industry Regulatory Authority Inc., the industry-funded broker regulator that reports to the SEC.
The SEC has been lobbying Congress for a substantial increase to its $1.35 billion budget, saying it would devote part of the boost to hiring more investment-adviser examiners.
The agency said it has made its examination program more efficient by using data analytics and technology to identify advisory firms that are most likely to be out of compliance.
“Certain targeted initiatives aimed at high-risk firms have already been implemented, and it is anticipated that these efforts will result in improved coverage levels in FY 2015,” the report states.
Among the priorities for the SEC's examination unit in 2015 are to focus on sales and marketing practices related to retirement plan rollovers, supervision of firms' information technology and the movement of advisers with disciplinary histories from firm to firm.
The SEC Broker-Dealer Task Force plans to implement “nationwide initiatives to combat problematic practices in this area such as churning and the failure to comply with anti-money-laundering requirements.”
