SEC Calls for More Study of Fiduciary Standard ... Will Action Ever Follow?

  • More than a quarter century after broker-dealers began re-branding their sales reps as “financial consultants” and “financial advisors” …
  • A little over 20 years after a blue ribbon panel appointed by the Securities and Exchange Commission (SEC) expressed growing concern over conflicts of interest in the broker-dealer business model …
  • More than 15 years after investor advocates identified applying a fiduciary standard to all investment advice as the single most important step the SEC could take to improve protections for retail investors …
  • Twelve years after a study commissioned by the SEC concluded that disclosure alone was not sufficient to distinguish services offered by broker-dealers and investment advisers ...
  • Ten years after the SEC announced an independent study to lay the groundwork for regulatory action …
  • And six years after an SEC staff study encouraged the Commission to engage in rule-making to establish a uniform fiduciary standard for broker-dealers and investment advisers ...

The SEC boldly announced last week that it plans to study, again, the standards that should apply when investment advisers and broker-dealers provide personalized investment advice.

This announcement was greeted with cheers from Wall Street lobbyists, who reiterated their oft repeated claim that the SEC is the agency most qualified to set the standards governing investment advice.

In case you missed it, that’s a swipe at the Department of Labor (DOL), which has spent the last six years studying and then acting on the problem, with a rule due to be implemented at the end of this week that requires all financial professionals to act in their customers’ best interests when providing retirement investment advice.

This claim of SEC superiority begs the question of why, if the SEC is so well “qualified” to act, its only actions in recent decades have been to make the problem worse.

Moreover, the framing of this development as an alternative to DOL action may help to explain why long-time supporters of SEC rule-making – including investor advocates and financial advisers already regulated as fiduciaries – greeted the announcement with more than a hint of skepticism. Some fear SEC’s renewed involvement could be little more than a ploy to delay or water down the DOL rule, an outcome Wall Street lobbyists favor and that Labor Secretary Alexander Acosta has signaled is more than an idle threat.

Despite whatever doubts we may feel, however, those of us who believe all financial advisers should have to act in clients’ best interests with regard to all their advised accounts will once again weigh in. We’ll answer the questions posed by the SEC, no matter that we’ve answered them many times before (for example, here and here and here).

After all, the possibility does exist that newly installed SEC Chairman Jay Clayton will the person who can make this happen, and that the SEC will use this round of study to support a strong, pro-investor standard — one that, like the DOL rule, doesn’t just give lip service to a best interest standard, but actually requires firms to rein in conflicts that encourage and reward advice that is not in customers’ best interests.

That would be a huge win for investors who have waited far too long for this most fundamental of protections.

Cue Liza Minelli singing “Maybe this Time” …

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