Rumbles of SEC Uniform Broker Standard Growing Louder

In the latest edition of PLANADVISER, columnist David Kaleda, a principal in the fiduciary responsibility practice group at the Groom Law Group in Washington, D.C., dives into the differences between the Department of Labor’s (DOL) fiduciary regulations and the way the Securities and Exchange Commission polices brokers and advisers.

“As the DOL attempts to move more retirement accounts to a fiduciary or ‘best interest’ standard, advisers who currently operate under a ‘suitability’ standard should consider what it means to work as a fiduciary or under a fiduciary-like standard of conduct,” Kaleda urges. “Additionally, advisers should evaluate how the two standards differ and in what ways such a change might affect their compliance procedures and business methods.”

This work has been made a little more complicated in the last several weeks as more signs have emerged that the Securities and Exchange Commission (SEC) is moving ahead on potentially changing its rules for how advisers and brokers must address and disclose conflicts of interest. Much of the industry speculation is that the SEC’s advice standard may soon be made to look more akin to the approach historically taken by the DOL—considered by many to be a higher standard of care.  

Underscoring its interest in the issue, the SEC is requesting data and other information from the brokers and advisers under its regulatory purview, in particular asking for “quantitative data and economic analysis relating to the benefits and costs that could result from various alternative approaches regarding the standards of conduct and other obligations of broker/dealers and investment advisers.” SEC intends to use the comments and data “to inform our consideration of alternative standards of conduct for broker/dealers and investment advisers when providing personalized investment advice about securities to retail customers.”

SEC will further use the information “to inform our consideration of potential harmonization of certain other aspects of the regulation of broker/dealers and investment advisers,” seemingly a nod to the DOL’s ongoing reforms. Based on information in SEC announcements, this could culminate in a new SEC rule as soon as the Spring of 2017. 

NEXT: Industry not waiting to weigh in 

Given the highly organized and coordinated character of the financial services industry, it’s no surprise that groups of providers are making their opinions known well in advance of any formal rulemaking from the SEC. Like in the DOL’s fiduciary rule debate, there are both positive and negative opinions being registered by various parties.

For example, the Financial Planning Coalition—comprised of the Certified Financial Planner Board of Standards, the Financial Planning Association, and the National Association of Personal Financial Advisors—issued a statement this week showing it clearly expects (and supports) near-term action from the SEC on this front.

“News that the Securities and Exchange Commission intends to move towards requiring broker/dealers to provide investment advice under a fiduciary standard is an encouraging sign that this important investor protection, long a coalition priority, is gaining steam,” the Coalition suggests. “We believe the Department of Labor’s fiduciary rule provides a framework for an SEC rule that applies the same standards to advice beyond retirement plans and IRAs.”

According to the Coalition, many investors already believe all advisers and brokers are policed by the same standards and rules of conduct, so it’s incumbent on the industry to live up to that expectation. “Investors, whether receiving advice for retirement assets or other investments, deserve advice that is in their best interests,” the statement concludes. “The Coalition looks forward to working with the SEC on this critical investor protection.”