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Compliance November 22, 2013
SEC Issues Call to Expand Oversight
The Securities and Exchange Commission (SEC) released twin recommendations advising Congress to align adviser and broker/dealer fiduciary standards and exact “user fees” from SEC-registered advisers.
Reported by John Manganaro
The SEC’s Investor Advisory Committee (IAC) says both actions, which require approval from a divided Congress to take effect, are necessary to ensure the oversight authority can complete its stated mission of protecting consumers and maintaining market integrity.
In a statement from the IAC, regulators contend the SEC must eliminate the regulatory gap that allows broker/dealers to offer investment advice without being subject to the same fiduciary duty as other investment advisers. This is necessary to promote fairness in the financial services industry as the roles of broker/dealers and financial advisers converge through technology and new business models, according to the statement.
The recommendation also stresses the importance of allowing broker/dealers to continue to offer transaction-specific advice compensated through transaction-based payments. The IAC feels this is possible even under a stricter fiduciary standard for broker/dealers, who are presently only required to sell or recommend products that are “suitable” for clients.
The suitability standard is generally considered an easier hurdle than the fiduciary standard applied to SEC-registered advisers, who must make all investment recommendations in their clients’ best interest.
In a separate statement, the IAC outlines a recommendation that Congress authorize the SEC’s Office of Inspection, Examination, and Enforcement to impose what would amount to user fees for SEC-registered investment advisers.
Revenue from the fees would be retained by the SEC to fund an enhanced investment adviser examination program, including more frequent on-site examinations. Under current funding and staffing levels, registered advisers are typically only subject to on-site audits by the SEC once every 13 or 14 years.
The IAC, in its second statement, calls this level “simply inadequate to detect or credibly defer fraud.”
The text of the first recommendation on merging fiduciary standards for advisers and broker/dealers is available here.
The second statement on SEC user fees can be read here.