SEC Reports on B/Ds and Advisers Expected Soon

The Dodd-Frank financial reform law mandated that the SEC investigate these matters.  The first report regarding adviser oversight may come out as early as this Friday, according to Reuters.  Currently, registered investment advisers (RIAs) are regulated by the SEC only, whereas broker/dealers are regulated by the SEC and the Financial Industry Regulatory Authority (FINRA).  Proponents of a self-regulatory group for advisers say that the SEC is stretched too thin to conduct thorough oversight responsibilities.  Advisers, however, oppose a self-regulatory group, saying they prefer the government to step up its oversight of the industry instead of outsourcing it to a private group, reports Reuters. (The SEC has been working on beefing up its oversight of advisers, see “SEC Proposes New Rules for Advisers.”)

As for the debate about whether broker/dealers should be held to a fiduciary standard, rather than current suitability standard (which requires an investment be “suitable” for a client, not necessarily in the clients’ best interest), gets to the bottom of SEC Chairman Mary Schapiro’s repeated concern that “mom-and-pop investors” usually do not know the difference if someone is giving unbiased advice or is trying to sell a lucrative product.  

One alternative to making broker/dealers work under a fiduciary standard is to require a written disclosure of fees. “What we are hoping as a result of this SEC process is they come up with a practice that allows firms to make the disclosure of the conflict, get a client waiver if the client so desires and then you have a way forward,” said Ira Hammerman, the general counsel at the Securities and Financial Markets Association (SIFMA), according to the report.  Those who oppose the disclosure idea say there are too many loopholes for broker/dealers to hide conflicts of interest.   

Reuters reports that many observers expect the SEC to come up with a new definition of fiduciary duty that finds a balance for broker/dealers and traditional investment advisers.