SEC supports fiduciary standard

The SEC Investor Advisory Committee wants to rein in U.S. broker-dealers who provide investment advice, reports Bloomberg.

On Friday, the committee voted to “recommend imposing a fiduciary duty on brokers who provide personalized investment advice,” reports Bloomberg. “Brokers now are required only to steer clients toward trades or investments deemed suitable, while investment advisers are obliged to put clients’ interests first.”

As part of the Dodd-Frank Act of 2010, SEC reviewed industry standards, and looked at whether consumers are confused about the roles of different financial professionals.

In a draft document, an SEC committee says, “Both broker-dealers and investment advisers play an important role in helping Americans organize their financial lives [and]…invest toward other important long-term goals.”

Read: Fiduciary standard will raise costs: CSA roundtable

However, “when the federal securities laws were enacted, Congress drew a distinction between broker-dealers (who were regulated as salespeople under the Securities Exchange Act of 1934) and investment advisors (who were regulated as advisors under the Investment Advisers Act of 1940).”

The committee now argues the roles of some broker-dealers and investment advisers have converged. “While differences remain,” says the SEC, “many broker-dealers today offer advisory services, such as investment planning and retirement planning…In addition, many broker-dealers use titles such as financial advisor for their registered representatives. [They]…market themselves in ways that highlight the advisory aspect of their services.”

Read: NASAA urges fiduciary standard for broker dealers

As such, SEC outlined in the document how to best impose a fiduciary standard. It makes two main recommendations and, within those, says:

• it favors an approach that involves rulemaking under the Investment Advisers Act to narrow the broker-dealer exclusion from the Act, while providing a safe harbor for brokers who don’t engage in broader investment advisory services or hold themselves out as providing such services; and
• it should consider rulemaking under Section 913(g) of the Dodd-Frank Act. Read more.

Also read:

Advisors, clients benefit from fiduciary standard, says FPC

Help clients understand your title

CSA requirements to improve disclosure now in effect

Canadian client satisfaction rises, says study

Financial firms must value client privacy