Despite SIFMA’s public statements that it supports a uniform fiduciary rule for all advisors, the Institute for the Fiduciary Standard believes that the brokerage industry group is really advocating a less stringent brokers sales standard.

In a strongly worded letter to the Securities and Exchange Commission, the Vienna, Va.-based Institute that represents investment advisors criticized SIFMA’s stand on the proposed rule. “It’s not even a close call to being a fiduciary standard,” Knut Rostad, the Institute’s president, said in a phone call to On Wall Street to discuss his letter on SIFMA’s position.

“SIFMA’s views are not supportable and would make a mockery of the fiduciary standard,” the Institute stated in its April 9th letter to SEC chairman Mary L. Schapiro. “As with any investment advice, whether the recommendation of proprietary products or a limited range of products depends on the facts and circumstances.

SIFMA wants “want to use the word fiduciary but when you look at the essence of it, it comes up short,” Rostad said in a telephone interview. During the last two weeks, members of the Institute have had four meetings with SEC staff and commissioners. From those meetings, Rostad said that there are a number of issues that have yet to be settled. “I think there’s certainly an opportunity to press these points and make our case.”

Under a fiduciary standard, an advisor is required to put the best interests of the clients first and provide disinterested advice. Under a suitability standard, which many brokers now adhere to, an advisor must recommend products that are suitable for a particular client.

Meanwhile at SIFMA’s most recent Private Client Conference last week, several wealth management executives voiced support for a uniform fiduciary rule. The discussion came as the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Obama on July 21, 2010, is set to hit its two-year anniversary this year. As of now, about 100 of more than 400 rules have been finalized. And, SIFMA has filed more than 140 comment letters regarding its views on the various parts of the pending legislation with regulators.

For instance, John Taft, chief executive officer of RBC Wealth Management, U.S., said at the conference that a uniform fiduciary standard is so critical for the industry to have right now, and would represent the highest possible form of investor protection. “I think that will be a watershed moment in the history of the private client industry,” Taft said of the impact of the possible creation of a uniform standard. “I hope we get there sooner rather than later.”

Chet Helck, executive vice president of Raymond James Financial and CEO of the Global Private Client Group, argued that many financial advisors are already putting their clients’ interests first, which already makes them a fiduciary. As to whether a fiduciary standard can be applied to the broker-dealer business model, which is rooted in manufacturing, Helck said it could be done. Financial advisors should be allowed to represent products and services, he said, as long as clients understand the terms.

But Rostad and the Institute argue that SIFMA’s view of a fiduciary standard is different from the one that regulators and investor groups support and that stems from the Dodd-Frank Act and the Investment Advisers Act of 1940 that govern investment advisers.

In fact, in SIFMA’s July 11, 2011 letter to the SEC, the trade group wrote: “Our members are also concerned that the SEC could take the unnecessarily narrow view that, because Section 913 of the Dodd-Frank Act requires that the uniform fiduciary standard be “no less stringent than” the general fiduciary duty implied under Section 206 of the Advisers Act, the SEC’s latitude and ability to establish a separate, unique uniform fiduciary standard is limited. We believe no such limitation exists or was intended under the Dodd-Frank Act. The plain language of Section 913, together with the legislative history of the Dodd-Frank Act, makes clear that the “no less stringent” language does not require that the SEC impose the Advisers Act standard on broker-dealers.”

In SIFMA’s letter from nearly a year ago, it also stated: “it would not be in the best interest of retail customers, because it would negatively impact choice, product access and affordability of customer services. It would also be problematic for broker-dealers from a commercial, legal, compliance, and supervisory perspective.”

However, the Institute in its recent letter stated: “The Dodd-Frank Act provides that the sale of proprietary or other limited range of products, ‘shall not, in and of itself, be considered a violation of such standard.’ The language merely means that proprietary or a limited-range of products, as a class; do not per-se breach the fiduciary standard. This language does not, however, support the notion that moving to a fiduciary standard should have no impact whatsoever on the sale of proprietary products, on the sale of a limited range of products, or the sale of any product that involves a conflict of interest.”

The Institute added that SIFMA’s position “appears to reflect a position that suitable product recommendations suffice, and that a fiduciary ‘due care’ screening and investment selection process to meet the ‘best interest’ standard is not required.”

The Institute, in its letter, also criticized SIFMA’s position when it comes to conflicts of interests, saying that the trade group prefers that brokers only disclose conflicts rather than avoid them altogether. “At its core, SIFMA, it appears, unabashedly champions the benefits of conflicted advice. SIFMA’s stance on conflicts is hard to reconcile with investors’ best interests. . .While there is no question that advisors are permitted to choose to either eliminate or to disclose conflicts, there is also no ambiguity which option the SEC strongly urges advisors follow. The SEC urges that advisors avoid conflicts . . .SIFMA does not offer any suggestions as to when a conflict is so serious that a consent should be required and assumes that every conflict can be managed through disclosure. There is no discussion of the possibility that a conflict of interest is so great that disclosure is insufficient to cure the conflict.”

In the telephone interview with On Wall Street, Rostad called SIFMA’s position a “startling departure” from the 40 Act and the U.S. Supreme Court decision that reviews the landmark piece of legislation. “Have we been wrong for decades that conflicted advice is not good?”

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