Financial advisory professionals welcomed President Barack Obama’s proposal, announced Wednesday afternoon, allowing the SEC to require a fiduciary standard for broker-dealers offering investment advice. But the suggestion to “harmonize the regulation” of investment advisors and broker-dealers has intensified the standoff between the two channels as to how joint oversight should be managed.

A fiduciary standard should be required of all professionals dispensing investment advice, the president suggested. Industry groups representing the two channels agreed on that much. “We have been wanting that for many years. It is the right way to go,” said Diahann Lassus, chairwoman of the National Association of Personal Financial Advisors. It is just common sense that when a broker is dispensing financial advice to investors, that they should have the same fiduciary standard as registered investment advisors, said Dan Barry, director of government relations for the Financial Planning Association. “It is what investors would intuitively expect,” Barry said.

Even FINRA has climbed on the fiduciary bandwagon. “When financial advice is being offered by a broker, a fiduciary duty should apply—two different standards are simply untenable in this world for persons engaging in very similar activities,” said Rick Ketchum, chairman and chief executive officer of the Financial Industry Regulatory Authority (FINRA) in a speech at the Exchequer Club, also on Wednesday. “From my perspective, FINRA is uniquely positioned to build an oversight program that ensures investment advisers are properly examined and their customers are adequately protected.”
Lassus said she will never use the word “harmonize,” because it does not require all that financial advisors adhere to fiduciary professional standards, which she says are the highest in the profession. “The buck stops with the SEC,” Lassus said. “They need to be given the funding to do what they need to do.”

Three of President Obama’s other proposals touch on the financial advisory profession; eliminating mandatory arbitration clauses in retail broker-dealer and investment advisory accounts; establishing a Consumer Financial Protection Agency (CFPA) and requiring hedge funds advisors to register with the SEC under the Investment Advisor Act of 1940.

Mandatory arbitration clauses allow investors and broker dealers to resolve serious disputes while avoiding long and expensive court cases. Although the original intent of arbitration is good, Lassus said, consumers are giving up their rights to sue. “Unless the case is put through a strong arbitration process, [arbitration] is not necessarily a good thing for consumers,” Lassus said.

The proposals also call for the launch of a Consumer Financial Protection Agency (CFPA). The CFPA would reduce gaps in federal supervision and enforcement; improve coordination with the states; set higher standards for financial intermediaries; and promote consistent regulation of similar products, according to a U.S. Treasury Department summary of the recommendations.  

“Consumers deserve better protections than they’ve gotten over last three or four years,” Lassus said. What the administration should do, she said, is clarify how the responsibilities of existing agencies and newly created ones overlap. “Where does one end and the other pick up?” she asked.

Several professional associations, including the Investment Adviser Association and NAVA, the Association for Insured Retirement Solutions, voiced cautious support for Obama’s proposals.

“We need to ensure we get effective regulation, not just more regulation,” said Cathy Weatherford, president and chief executive officer of NAVA. “Unless it’s effective, layering on more and more bureaucracy will do more harm than good.”

The proposed rule about hedge fund advisors mirrors proposed legislation introduced in January. “While hedge funds did not cause the current economic and financial crisis facing the United States, they, along with the rest of the shadow banking industry, played a role,” Fred Joseph, president of the Washington, D.C.-based North American Securities Administrators Association said in late May, when the organization endorsed the legislation.