Legal Alerts

Renewed Focus on a Fiduciary Standard from SEC


At the SIFMA conference in Arizona in March 2015, Securities and Exchange Commission (SEC) Chairwoman Mary Jo White made it clear that the SEC should “act” on a uniform fiduciary standard for brokers and investment advisors, one that should be “codified” and rooted in the current fiduciary standard for investment advisors. White further indicated that the SEC should move forward on third-party exams for advisors, although she stressed that such third-party exams would not replace advisor exams performed by the SEC’s Office of Compliance Inspections and Examinations. White’s position means the SEC will tackle a fiduciary standard for retail investment advice while the Department of Labor (DOL) proposes a separate rule for brokers giving advice regarding retirement accounts. At SIFMA, White explained that the DOL and SEC can pursue separate rules because they operate under different laws.

Following White’s comments at SIFMA, many organizations and associations reacted to the announcement. Karen Barr, president and chief executive of the Investment Advisor Association (IAA) stated her support for White’s position: “I think it was a breakthrough… She hadn’t quite stated as clearly as today what her own view on the subject was.” Gary Sanders, vice president of the National Association of Insurance and Financial Advisors (NAIFA), said NAIFA members are “already looking out for their clients’ best interests” given their “relationship-based business model,” so they are waiting to see what the SEC comes up with.   

With all the signs leading to new regulations for financial advisors and broker-dealers, White acknowledged that there are inherent complexities and challenges that come with such “rulemaking,” including (1) how to define that standard; (2) what is required under that standard; and (3) how do you ensure compliance and enforcement of that standard. White did not give a timeline for when the SEC would formally propose a rule. 

A few weeks after White’s comments at SIFMA, the DOL released a long-awaited and hotly debated proposal that would, from the perspective of the DOL, force financial advisors to put their clients’ interest ahead of their own when recommending retirement investments. The rule, which is fiercely opposed by many in the brokerage community, will expand the number of financial advisors subject to the so-called fiduciary standard. Secretary of Labor Thomas E. Perez simply explained that “if someone is paid to give you retirement investment advice, that person should be working in your best interest.” And, “as commonsense as this may be, laws to protect consumers and ensure that financial advisers are giving the best advice in a complex market have not kept pace.” Perez also mentioned that the DOL and the SEC have consulted on the proposed regulations.    

In sum, although it’s not clear exactly what these rules will look like, or what the timetable is for their implementation, financial advisors and broker-dealers should pay close attention because inevitable changes are on the horizon.

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