Pro-Fiduciary Group Pushes for SEC Action


By Linda Koco

Once again, a coalition of pro-fiduciary trade groups is urging Securities and Exchange Commission (SEC) to expand the fiduciary standard to include broker-dealers (B/Ds) when they provide personalized investment advice to retail investors.

This time, the message accompanies an eight-page letter that the Financial Planning Coalition recently delivered to the SEC. The letter argues in support of the SEC making a “thorough, well-reasoned economic analysis” of regulatory standards for retail B/Ds and investment advisors when providing such advice.

Perhaps this advocacy comes as no surprise. The five signatories are staunch and long-standing proponents of expanding the fiduciary standard, which currently applies to investment advisors but not to B/Ds. The five include: the Consumer Federation of America, Fund Democracy, Inc., Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors.

But the tone of this letter is terser than what normally appears in documents aimed at persuading regulators to take a particular position. It reflects a curious mix of reason and reproach.

On the “reason” side of things, the letter lays out six key elements that the coalition believes the SEC “must include” in its economic analysis related to fiduciary standards. It lists the elements and gives reasons for them in an orderly fashion. Many documents sent to regulators use a similar format.

For example, the coalition says the analysis should depict the differences between the suitability and fiduciary standards. “When the Commission issued the Request for Information (RFI) to support this economic analysis, we were deeply troubled to discover that it described the fiduciary standard without once referring to the best interest obligation that is the cornerstone of the fiduciary standard,” the coalition comments. More discussion ensues.

But then there is the “reproach” aspect of the letter. At various points, the coalition directly criticizes the SEC for its fiduciary oversight.

For instance, the letter contends that each of the six elements it addresses “represents an area where the Commission has gone astray in the past.” As a result, it says, “the Commission has been either unwilling or unable over the past 25 years to develop a rational policy framework for the delivery of personalized investment advice to retail investors.”

Later, the letter takes the SEC to task for its “…past actions, and inaction, that have been primarily responsible for blurring the lines between broker-dealers and investment advisers.”

Further on, it contends that, instead of acting to clarify the division between B/Ds and investment advisors, “the SEC policy adopted policies specifically designed to further erode clear regulatory boundaries.”

It blames the SEC for choosing “to sweep away the constraints imposed by the laws in order to achieve its own regulatory goals.”

While all that makes for an interesting read, the natural question to ask is, will this be persuasive? Coalition members likely explored the pros-and-cons on this before delivering their letter to the SEC on Nov. 21, and before deciding to post it on the coalition website yesterday for all to see.

Perhaps they decided the letter will achieve certain desired outcomes, even if the SEC goes in a different direction. For instance, the letter does present the views members who are dues-paying coalition constituents that want their voices heard. And the strongly worded language implies, though does not state, that the coalition will probably not leave this matter alone.

Besides, it’s entirely possible that the SEC will take the criticisms in stride right along with the rest of the letter. After all, it’s not the first time the SEC has heard them.

Current thinking has it that the SEC will publish its economic analysis and a related rulemaking by early next year. Therefore, tensions are running high right now, not only among proponents of fiduciary standard expansion but also among opponents such as groups representing stock brokerages, insurance agents, and big banks. The mood has an eleventh hour feel to it, not unlike the tone of the coalition letter. Everyone is staying tuned, urgently waiting. What will the SEC do?



Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Connect with Linda →

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