Pennsylvania + Wall



 

Pennsylvania + Wall provides commentary on a broad range of current financial, economic and regulatory reform topics. The views expressed are those of the authors, and do not necessarily reflect the position of SIFMA.

September 16, 2013

Investors First: A Fiduciary Standard for Brokers

By Ira Hammerman

DOL, Fiduciary, ERISA, RetirementInvestors’ best interests should be put first by their financial advisor. SIFMA has long supported a uniform fiduciary standard of conduct that would hold both broker-dealers and investment advisers to the same robust standard when providing personalized advice about securities to their individual retail clients. Recent commentary that suggests SIFMA supports anything less is simply not accurate. 

SIFMA supports the SEC’s goal of establishing a uniform fiduciary standard for broker-dealers that is equally robust as the current standard for investment advisers, but also appropriately tailored to recognize and preserve the unique aspects of the broker-dealer business model. This includes appropriate requirements for disclosing and managing potential conflicts of interest, consistent with the principles of acting as a fiduciary. 

Investors should have the right to choose what type of financial advisor best fits their needs, period. For an affluent investor seeking advice on long-term financial goals, the best choice might be a fee-based investment adviser. Brokerage clients tend to vary regarding the level of advice they seek – many are self-directed or less affluent investors who like the variety of products and services that a broker-dealer can provide. They also like the option of paying a commission per transaction, as opposed to a flat fee, as it is often the less expensive option. 

A new uniform fiduciary standard should protect investors but not restrict their access to or ability to choose the products and services they want from their brokerage firm. Some have suggested the only way to impose a true fiduciary standard on brokers is to simply extend to them the current rules that govern investment advisers. Doing so, however, would create a high risk of confusion and misapplication, given the fundamental differences between the way broker-dealers and investment advisers are regulated, operate and service their respective clients. SIFMA opposes this overlay of the Advisers Act approach in favor of new rules that would provide the detail, structure and guidance necessary to enable broker-dealers to apply the new standard to their distinct operational models. 

Overlaying investment-adviser rules on broker-dealers would also unfairly shift the competitive landscape in the favor of fee-based advisers. Less affluent investors would be hit the hardest, as they’d have less access to lower-cost financial options. One of the greatest advantages of using a broker-dealer is the wide variety of products and services they can offer. Although the breadth of products and services may raise prospective conflicts that need to be appropriately managed, they do not preclude a broker from fully satisfying a fiduciary standard. 

One vital component of the fiduciary debate that is often overlooked is the importance of adequate oversight and examination for compliance with the new standard. A fiduciary standard will only protect investors if it is appropriately enforced. Further, common sense tells us that a uniform fiduciary standard should be uniformly enforced. Currently, the SEC only has the resources to examine investment advisers once every 11 years. 11 years! In contrast, the brokerage industry is examined regularly by the Sec, state securities regulators and has a designated self-regulatory organization, FINRA, that examines broker-dealers every other year. Investors will be better served if a self-regulatory organization is given authority to oversee and examine investment advisers with far greater frequency. 

Just about everyone in the financial community agrees that we’ve had a bifurcated set of standards for individual retail brokers and advisers who provide personalized investment advice for long enough. SIFMA is encouraged by the widespread support for the SEC establishing a uniform fiduciary standard. As the SEC moves forward to contemplated rulemaking, our members remain committed to providing the fact-based insight the SEC needs to craft rules that work, by both protecting individual investors and adapting to different business models. 

Ira Hammerman
Senior Managing Director and General Counsel
SIFMA

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Investors First: A Fiduciary Standard for Brokers

(Public Policy, Private Client) Permanent link

By Ira Hammerman

DOL, Fiduciary, ERISA, RetirementInvestors’ best interests should be put first by their financial advisor. SIFMA has long supported a uniform fiduciary standard of conduct that would hold both broker-dealers and investment advisers to the same robust standard when providing personalized advice about securities to their individual retail clients. Recent commentary that suggests SIFMA supports anything less is simply not accurate. 

SIFMA supports the SEC’s goal of establishing a uniform fiduciary standard for broker-dealers that is equally robust as the current standard for investment advisers, but also appropriately tailored to recognize and preserve the unique aspects of the broker-dealer business model. This includes appropriate requirements for disclosing and managing potential conflicts of interest, consistent with the principles of acting as a fiduciary. 

Investors should have the right to choose what type of financial advisor best fits their needs, period. For an affluent investor seeking advice on long-term financial goals, the best choice might be a fee-based investment adviser. Brokerage clients tend to vary regarding the level of advice they seek – many are self-directed or less affluent investors who like the variety of products and services that a broker-dealer can provide. They also like the option of paying a commission per transaction, as opposed to a flat fee, as it is often the less expensive option. 

A new uniform fiduciary standard should protect investors but not restrict their access to or ability to choose the products and services they want from their brokerage firm. Some have suggested the only way to impose a true fiduciary standard on brokers is to simply extend to them the current rules that govern investment advisers. Doing so, however, would create a high risk of confusion and misapplication, given the fundamental differences between the way broker-dealers and investment advisers are regulated, operate and service their respective clients. SIFMA opposes this overlay of the Advisers Act approach in favor of new rules that would provide the detail, structure and guidance necessary to enable broker-dealers to apply the new standard to their distinct operational models. 

Overlaying investment-adviser rules on broker-dealers would also unfairly shift the competitive landscape in the favor of fee-based advisers. Less affluent investors would be hit the hardest, as they’d have less access to lower-cost financial options. One of the greatest advantages of using a broker-dealer is the wide variety of products and services they can offer. Although the breadth of products and services may raise prospective conflicts that need to be appropriately managed, they do not preclude a broker from fully satisfying a fiduciary standard. 

One vital component of the fiduciary debate that is often overlooked is the importance of adequate oversight and examination for compliance with the new standard. A fiduciary standard will only protect investors if it is appropriately enforced. Further, common sense tells us that a uniform fiduciary standard should be uniformly enforced. Currently, the SEC only has the resources to examine investment advisers once every 11 years. 11 years! In contrast, the brokerage industry is examined regularly by the Sec, state securities regulators and has a designated self-regulatory organization, FINRA, that examines broker-dealers every other year. Investors will be better served if a self-regulatory organization is given authority to oversee and examine investment advisers with far greater frequency. 

Just about everyone in the financial community agrees that we’ve had a bifurcated set of standards for individual retail brokers and advisers who provide personalized investment advice for long enough. SIFMA is encouraged by the widespread support for the SEC establishing a uniform fiduciary standard. As the SEC moves forward to contemplated rulemaking, our members remain committed to providing the fact-based insight the SEC needs to craft rules that work, by both protecting individual investors and adapting to different business models. 

Ira Hammerman
Senior Managing Director and General Counsel
SIFMA

Posted by Ed Shovar at 09/24/2013 12:57:10 PM | 


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