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3/20/15 – SEC Chair Expresses Support for Uniform Fiduciary Standards

Registered broker-dealers may soon have to abide by the same fiduciary standards that apply to investment advisers, a tougher standard than the current suitability requirements. At a recent industry conference, Securities and Exchange Commission Chair Mary Jo White said it was her personal view that the commission should implement uniform fiduciary standards for brokers and other investment professionals, including investment advisers.

While the SEC has yet to propose a rule, the Labor Department in 2011 withdrew a proposed rule that would have expanded the Employee Retirement Income Security Act definition of fiduciary to include brokerage services related to retirement products. Earlier this year, President Barack Obama instructed the Labor Department to re-propose this rule, in part due to a White House study estimating that conflicted investment advice lowers returns on individual retirement accounts by about $17 billion annually. It is not yet clear the extent to which the SEC’s approach will mirror that of the Labor Department as the commission drafts its proposal; White commented that they “are separate agencies” that “have separate mandates.”

As required by Title IX of the Dodd-Frank Act, the SEC in January 2011 submitted to Congress a study that recommended adopting a uniform fiduciary standard. The study noted that retail investors are often confused about what set of legal standards applies to their dealings with different investment professionals and that “retail investors should not have to parse through legal distinctions to determine whether the advice they receive was provided in accordance with their expectations.” Before considering a proposed rule, the SEC stated it would first release a cost-benefit analysis incorporating public responses and data regarding the provision of retail investment advice. A formal request for data and other information prompted more than 3,000 responses about broker fiduciary standards and findings in the Title IX study. The cost-benefit analysis incorporating these responses has not been completed, but White’s comments seem to indicate that the topic is getting closer to the top of the agency’s agenda.

Contact Promontory

Promontory helps regulated entities, including broker-dealers and investment advisers, understand obligations to their clients. We would be happy to discuss any questions you may have about White's comments and how registrants should prepare for potential regulatory changes. For more information, please contact:

Konrad Alt
Managing Director, San Francisco
+1 415 986 4160

Michael Sullivan
Director, Washington, D.C.
+1 202 384 3508