WASHINGTON -- A federal appeals court
"Even if the DoL rule goes away altogether, they still need to worry about states stepping [forward] with their own fiduciary duty rule for broker-dealers, so my guess, if I had to guess now, is that the SEC is going to go forward," said Karen Barr, CEO of the Investment Adviser Association, who spoke at the group's annual compliance conference.
The SEC has been authorized to craft a
Earlier this month, a coalition of 11 state treasurers
A spokeswoman for the SEC declined to comment for this report.
SEC commissioners from both parties, as well as the
"The whole reason the SEC is trying to address this issue is the confusion that investors have," said Rick Fleming, the SEC's investor advocate.
The contours of the SEC's anticipated fiduciary framework have come into focus as the commission gets closer to finalizing and publishing its proposal.
Barr outlined a likely three-part structure to the proposal that would include a new rule for brokers to act in the best interest of their clients, a new disclosure document for both brokers and advisors, and some guidance on what obligations advisors have under the fiduciary responsibilities that come from the 1940 Investment Advisers Act.
She also noted that there is some indication from the commission that it is considering including language that would address the issue of titles and how financial professionals represent themselves. Some groups have
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Some are calling for the CFP Board to get tough on conflicts and compensation as it finishes revisions to its standards of conduct.
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"I think it's something that the market needs. I think it's something that regulators need," Jay Clayton says.
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Massachusetts regulators accuse the firm of running afoul of the impartial conduct standard by holding sales contests.
February 15
But the framework that was starting to take shape could now change considerably in light of the appeals court's ruling, according to Neil Simon, IAA's vice president for government relations. That likely revision could alter the policy provisions of the proposal, or its legal underpinning, given the court's finding that the Labor Department exceeded its statutory authority.
"Although I suspect that there is still a lot of momentum and that the SEC will move forward, I have to believe this is going to give them pause and they are going to have to reconsider the authority upon which they are basing what appears to be the proposal," Simon said.
All indications from the SEC suggest that it won't move to dramatically upend the brokerage business model, according to Brendan McGarry, an attorney specializing in broker and advisor issues with the law firm Kaufman Dolowich & Voluck.
"Based on all of the comments to date by the SEC, its anticipated fiduciary standard will likely try to fit within the current regulatory construct," McGarry writes in an email. "That is, the SEC appears to be trying to allow for current business models of both fee-based accounts and commission-based accounts, without pre-determining one is better than the other."
Fleming shares the view that the SEC is likely to move ahead with a standard of conduct rule for brokers and advisors, irrespective of the DoL's legal setback. However, he worries that the focus on a so-called best interest standard could overtake the more rigorous fiduciary responsibilities that put more of an emphasis on mitigating conflicts rather than simply disclosing them.
"I think people sort of recognize the difficulty of having a true fiduciary duty on the brokerage business which is a commission-based model and has sort of inherent conflicts in it," he said. "If you're going to impose what you're calling a best interest standard on the broker-dealer side, it needs to actually make a difference. It shouldn't just be suitability with a different name."
"So I ask the question, basically: What would a broker be prohibited from doing under a best interest standard that they're now allowed to do under a suitability standard?" Fleming said. "And if there's no daylight between the two, at the end of this rulemaking, then what was the point?"