As we find ourselves in the thick of the football season, I see a metaphor for the long march toward a uniform fiduciary standard. Imagine your favorite team is slowly marching the ball down the field, in fits and starts. Around mid-field it faces a crucial third down play, when it calls time-out to ponder its next move. As the team re-enters the playing field, it discovers that the defense has been penalized. The first down is gained and the team remains on the march. While this gain is not due to any action by the offense, it is a fresh start. The goal line remains a long ways away, the defense remains resolute, but small progress has been made. Enthusiasm returns to the stands.
Which brings us back to the SEC. As managing director of advisor advocacy for TD Ameritrade Institutional, I’ve read the Dodd-Frank Wall Street Reform and Consumer Protection Act, but I did not foresee that Section 911 — mandating the creation of an “Investor Advisory Committee” to help guide the SEC in its rulemaking — would 3½ years later push forward the idea of a uniform fiduciary standard.
The committee is chaired by veteran consumer investor advocate Barbara Roper1, a friend of TD Ameritrade Institutional’s through our joint work in the arena of investor protection and by her numerous speaking appearances at our advisor conference events.
Ms. Roper, sharply focused on investor protections for 27 years as a director at the Consumer Federation of America, recently has guided the committee to final approval on its draft statement on the need for a principles-based uniform fiduciary standard for brokers and advisors. (The vote was held on Friday, November 22nd after having been delayed earlier by the government shutdown). Below is a brief summary of, and excerpts from, the key recommendations the committee offered the SEC:
• “Investors may be harmed if they choose a financial adviser under a mistaken belief that the financial adviser is required to act in their best interest when that is not the case… these types of harm can… have a significant impact on investors’ financial well-being.”
• “The committee favors an approach that involves rulemaking under the Investment Advisers Act to narrow the broker-dealer exclusion from the Act…”
• “In order to ensure that the standard is no weaker than the existing Advisers Act standard, any fiduciary rule adopted must incorporate an enforceable, principles-based obligation to act in the best interests of the customer.”
• “… sales-related conflicts of interest…be fully disclosed and appropriately managed.”
The broker-dealer’s primary lobbying group, the Securities Industry and Financial Markets Association (SIFMA), on Oct. 11 published a response to the committee’s draft proposal prior to it even being voted on. SIFMA said “many if not most of the Recommendations are in accord with SIFMA’s views on how to implement Dodd-Frank Section 913….”
However, SIFMA differs with the Investor Advisory Committee’s work in three ways: (1) “First, there is no evidence that investors are being harmed by the current suitability standard”; (2) SIFMA says it does not support a ’40 Act basis for a new uniform fiduciary standard; and (3) “these incongruities may be attributable to the fact that the Subcommittee does not have a single broker-dealer representative.”
This is a curious criticism, since it is by design an “investor” committee. The Dodd-Frank statute specifically lists the types of investors and advocates which should be represented on the committee, with no mention of any broker-dealer representation.
Immediately following the committee’s vote, SEC chairman Mary Jo White told the media, “I think this is a very important issue myself. This committee’s recommendations are very important to us.”
Will the committee’s work be the key play that helps move the fiduciary ball down the field? When I wrote Ms. Roper to congratulate her on the outcome, she responded, “Thanks. I think this vote was an important step in the process.”
The game is not over, and the RIA industry’s drive for a uniform fiduciary standard may be moving into a more active and, hopefully, winning phase. Don’t touch that dial.
Skip Schweiss is the president of TD Ameritrade Trust Company and the managing director of Advisor Advocacy & Industry Affairs for TD Ameritrade Institutional.
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