As regulators continue their work implementing the numerous provisions of the Dodd-Frank financial reform act, a leading Wall Street trade group is hoping that 2013 will see movement on the controversial effort to implement a uniform fiduciary duty for investment advisors and broker-dealers when providing personalized advice to retail clients.
The Securities Industry and Financial Markets Association (SIFMA), which has been a consistent supporter of a uniform fiduciary standard, is urging the Securities and Exchange Commission to look past opposition from some corners of the industry and press ahead with its development of a rule, a process the agency began two years ago.
"As we have been throughout this process, we'll continue to engage with the SEC as they look to move forward with its rulemaking process on fiduciary," said SIFMA spokesman Andrew DeSouza.
"What we are expecting from the SEC in the coming months is a sort of concept release or request for information that'll be the next step toward actual rulemaking. We expect that release to come out by the end of the first quarter," DeSouza said.
At present, the SEC holds advisors to a fiduciary standard that requires them to act in the best interest of their retail clients when making recommendations about investment strategies. Broker-dealers, by contrast, are required to adhere to a less explicit suitability requirement that stipulates that they recommend appropriate investments for their clients, but not necessarily that they put their clients' interests ahead of their own.
The SEC was authorized to create a uniform fiduciary standard for advisors and brokers under the Dodd-Frank financial reform bill in an effort to strengthen protections for investors. Lawmakers included the provision in the assumption that many consumers do not understand the technical differences between various financial professionals and the inconsistent regulatory obligations they face.
In January 2011, the SEC produced a report endorsing an alignment of the regulatory requirements for the two professions, though the rulemaking process has been delayed as the commission conducts a cost-benefit analysis to assess the impact of a uniform fiduciary proposal, specifically looking at the burden an overhaul of the current standards will place on industry practitioners.
In the face of pressure from some industry groups, such as the National Association of Insurance and Financial Advisors, as well as dissent within the commission, Mary Schapiro, former chairman of the SEC, tabled the uniform fiduciary standard to conduct the cost analysis.
Now, with Elisse Walter heading the commission on an interim basis, the SEC could move ahead with the next phase of its work on the issue as early as the first quarter of this year, with the expected issuance of a request for information or an outline of what a potential rule might look like.
For SIFMA, the lingering opposition to a uniform rule is frustrating, what Ira Hammerman, the group's senior managing director and general counsel, attributes to a cynical stall tactic on the part of industry interests looking to duck heightened regulatory scrutiny.
"It seems as though we continue to re-litigate the past on one of Dodd-Frank's most thoroughly debated provisions," Hammerman wrote in a recent blog post.
"[S]ome in the investor advisor community want to continue to debate the issue and continue to play politics instead of working with the broker community to help the SEC establish a standard that is, indeed, no less stringent, than the current fiduciary standard for investment advisors," Hammerman added.
It remains unclear whether the SEC will be able to conclude its work to establish binding and consistent rules for the industry that would be at least as stringent as the standard currently governing investment advisors counseling retail clients. The prospects for SEC action on the uniform fiduciary standard could depend in large part on the timing of an appointment of a fifth commissioner to fill the vacancy left by Schapiro's departure. The agency is currently divided two-two along party lines.
Additionally, it is important to note that the Dodd-Frank bill authorized -- but did not mandate -- the SEC to overhaul the fiduciary standard for financial professionals. Former Rep. Barney Frank (D-Mass.) advised the SEC that the intention of the statute was to empower the agency to draft a new fiduciary standard that would account for the distinctions in the business models and the services provided by various financial professionals, rather than simply extending the existing fiduciary responsibilities for investment advisors to broker-dealers.
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