Groups Urge SEC to Uphold Fiduciary Standard

A coalition of organizations urged Mary Jo White, chairman of the Securities and Exchange Commission (SEC), to establish a uniform fiduciary standard for broker/dealers and advisers.

In a letter to White, the group urged focus on investor protection, and called on the SEC to extend a client-first fiduciary standard to broker/dealers providing personalized investment advice to retail customers. The standard should be at least as strong as the existing one for investment advisers. The letter vigorously opposed any rule that would weaken investor protections.

At the heart of the debate surrounding the need for a fiduciary standard is fairness, said Kevin R. Keller, chief executive officer of the Certified Financial Planner Board of Standards. “Whether saving for retirement or their children’s college education, American investors should get advice that is best for them and not their financial adviser,” Keller pointed out. The adviser’s duty to an investor should not depend on the regulator of the adviser, he said, urging the SEC to stay true to Congress’ intent in the Dodd-Frank Act. American investors deserve investment advice from an adviser who has a fiduciary duty to act in their best interests at all times, Keller said.

The letter outlines the group’s concerns that the SEC’s March Request for Information (RFI) signals that the SEC may be backing away from requiring a fiduciary standard for broker/dealers that is “no less stringent” than the one under which registered investment advisers (RIAs) currently operate.

Section 913 of Dodd-Frank required SEC staff to analyze standards of care applicable to advisers and broker/dealers, and recommended that the standard of care should be what is in the best interests of the consumer without regard to business model.

“The assumptions contained in the RFI fail to include key elements of the fiduciary standard such as the obligation to act in the best interest of the customer.  If the fiduciary duty is based on the RFI assumptions, it would be weaker than that originally set forth in the Section 913 Study and far less stringent than that currently imposed under the Advisers Act,” the group said in its letter. “If the SEC were to adopt this approach, we fear that it would significantly weaken the fiduciary standard for SEC-registered investment advisers, while adding few new protections for investors who rely on broker-dealers for investment advice. This approach would have negative consequences for investors and is one we would vigorously oppose.”

Disclosure Does Not Replace Loyalty

Full disclosure plays an important part of the fiduciary relationship between an adviser and client, but it does not replace loyalty, ongoing duty of care, or managing conflicts or avoiding them where possible, said Lauren Locker, national chair of the National Association of Personal Financial Advisors. “Relying on disclosures to sidestep working in the best interest of the client is inconsistent with the Advisers Act of 1940 and would weaken the existing fiduciary standard for registered investment advisers,” Locker said. The organization strongly opposes a standard where disclosure displaces advice based on principles.

“Requiring a fiduciary standard of broker/dealers doesn’t mean they need to stop earning commissions or providing services to middle class clients,” said Michael Branham, president of the Financial Planning Association. Rather, it means broker/dealers need to put clients’ interests first by fully disclosing and appropriately managing conflicts of interest, he explained: “Financial planners who have voluntarily embraced the fiduciary standard have demonstrated that it can be applied successfully across business models for the benefit of both clients and advisers.” 

“The Commission's RFI does not appear to incorporate the most crucial aspect of fiduciary duty – that the overarching duty to act in the client’s best interest is an ever-present overlay to all of the other duties, rules, and assumptions discussed in the RFI,” said David G. Tittsworth, executive director of the Investment Adviser Association. The RFI seems to contemplate simply adding disclosure requirements to existing broker/dealer rules and labeling the result a fiduciary standard, Tittsworth said, calling this approach watering down the Advisers Act fiduciary standard.

Organizations that signed the letter are: AARP, American Institute of Certified Public Accountants, Certified Financial Planner Board of Standards, Consumer Federation of America, Financial Planning Association, Fund Democracy, Investment Adviser Association, National Association of Personal Financial Advisors and the North American Securities Administrators Association.

The text of the letter is here.