The Financial Planning Coalition submitted a letter to the Securities and Exchange Commission saying it would "vigorously oppose" attempts to weaken the fiduciary standard for broker-dealers and submitted research showing a client-first standard does not limit advice to “mass market” clients.
The letter and research study also suggested that broker-dealers working under a client-first standard experience greater success compared to those operating under a suitability standard and without a significant increase in their costs.
The study comes as the Securities and Exchange Commission weighs the possibility of expanding the “fiduciary” standard to hold broker-dealers to the same standard of care for retail clients as investment advisors are expected to have. Some industry groups representing broker-dealers and other investment advisors are pushing back on such an expansion, however.
The study—conducted by the Aite Group—was part of the Financial Planning Coalition's response to the SEC request for information, or RFI. In its letter, the Coalition— which comprises the Certified Financial Planner Board of Standards, Financial Planning Association and the National Association of Personal Financial Advisors—stated that a “fiduciary standard will benefit retail customers or their financial advisers, and will not impose significant costs.”
“The ‘best interest of the customer’ standard should be the key feature of any uniform fiduciary standard of care,” the Coalition stated in its letter. “However, the RFI does not adequately recognize this central concept … Indeed the standard contemplated in the RFI is little more than the existing broker-dealer suitability standard supplemented by some conflict of interest disclosures.”
The Coalition reiterated its view that the current assumptions made by the SEC would “significantly weaken the fiduciary standard for SEC-registered investment advisers while adding few meaningful new protections for retail customers.”
“We vigorously oppose such an approach, because it would have negative consequences for retail customers,” said the Coalition, urging the SEC to promptly propose a uniform fiduciary standard that is consistent with the existing standard required under the Investment Adviser Act of 1940.
The Financial Planning Coalition’s letter also argued that the RFI’s focus on enhanced disclosure suggests that such disclosure is sufficient for the fiduciary standard. While disclosure of conflicts of interests is a beneficial and important step, disclosure alone is not sufficient to discharge an adviser’s fiduciary duty, the Coalition pinted out.
The Coalition letter identified specific issues with the RFI’s assumptions and proposed an alternative set of assumptions for a uniform fiduciary standard consistent with Dodd-Frank and the Advisers Act.
The letter said the alternative standards of conduct and approaches discussed in the RFI are inconsistent with Section 913(g) of the Dodd-Frank Act.
The letter also said the SEC should address harmonization of investment adviser/broker-dealer rules after it adopts a uniform fiduciary standard of care: the two issues are conceptually distinct and should not be linked.
The research submitted as part of the comment letter indicated that “applying a uniform fiduciary standard on broker-dealers will have little if any effect on the availability of advice to customers.”
Those surveyed reported that broker-dealers who are already operating under the fiduciary standard “experience stronger asset growth, stronger revenue growth, and obtain a greater share of client assets than those that provide services primarily under a non-fiduciary model.”
The research also found that a majority of brokers and advisers are already operating under a fiduciary standard. Those brokers and advisers agreed that the standard should apply when giving advice to retail consumers and that requiring this client-first standard has very little impact in deciding whether to serve "mass market" clients. Conversion of fee-based brokerage accounts to fiduciary accounts indicated that a fiduciary standard does not lead to increased costs or decreased services.
However, some groups are arguing that the fiduciary standard would create confusion.
Brian H. Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries and executive director of the National Association of Plan Advisors, released the following comment in response to the SEC’s request for information. “ASPPA and NAPA believe the proposal by the U.S. Securities & Exchange Commission (SEC) to create a ‘uniform fiduciary standard’ for broker-dealers and investment advisers will actually cause more—not less —confusion for retail customers,” he said. “This recommendation would effectively result in a non-uniform ‘uniform fiduciary standard’ leading to significantly increased confusion for retail customers when selecting an investment professional.
"Instead of mislabeling all investment professionals who are governed by different requirements, we believe improved disclosure will better serve retail customers," Graff added. "One solution the SEC should consider is to require broker-dealers and investment advisers to provide retail customers with clear and concise pre-engagement disclosures designed to assist the retail customers in the selection of investment professionals. We urge the SEC to take the lead to ensure that concise, consistent disclosures are provided by broker-dealers and investment advisers to protect retail customers’ access to investment advice, regardless of the method by which their investment accounts are taxed.”