SEC Study Calls for Uniform Fiduciary Standard

  • Originally published February 2, 2011 , last updated April 28, 2016
SEC Study Calls for Uniform Fiduciary Standard

The Securities and Exchange Commission’s (SEC) long-awaited study on fiduciary standards calls for adoption of a uniform fiduciary standard of care for broker-dealers (B/Ds) and investment advisers.

Back in July, H.R. 4173 (aka the Dodd-Frank bill) called for the SEC to carry out the study to examine whether to institute a uniform fiduciary standard.

The fiduciary standard requires advisors to put the customer’s interests first when providing investment advice. Investment advisors are already subject to this standard. B/Ds are currently held to another standard — a suitability standard requiring them to provide advice and products most suited to the customer.

The study not only recommends extending the fiduciary standard to include B/Ds. It also recommends “harmonization” of B/D and investment adviser regulatory regimes, to enhance their effectiveness in the retail marketplace.

These recommendations have drawn sharp criticism both from those inside and outside the SEC. In fact, two SEC commissioners — Kathleen L. Casey and Troy A. Paredes — both objected strongly to the report. The National Association of Insurance and Financial Advisors (NAIFA) has also voiced concerns about the staff recommendation for a uniform fiduciary standard, saying it will increase B/D costs and liability.

The Financial Planning Coalition, on the other hand, has applauded the study and urged the SEC to move forward quickly with its recommendations, saying “investors expect and deserve advice that is in their best interests, regardless of who is providing the service.”

According to the Report, a Uniform Fiduciary Standard would:

  • Require “all brokers, dealers, and investment advisers, when providing personalized investment advice about securities to retail customers, to act in the best interest of the customer without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice.”
  • Require both investment advisers and broker-dealers to eliminate or disclose conflicts of interest.
  • Be accompanied by additional investor outreach and education
  • Not conflict with commission-based business models
  • Reduce investor confusion

Do you think brokers should be held to the same standard as investment advisors?

Or do you think the standard of suitability is enough to protect consumers?