In her first speech since President Obama released a white paper Wednesday detailing his plan to overhaul financial regulation, SEC Chairman Mary Schapiro came out in support of a fiduciary standard of care for all professionals providing personalized financial advice. She detailed the commission’s plans in a speech she delivered at the New York Financial Writers’ Association in New York City Thursday evening.

Citing the often overlooked RAND report of 2008, Schapiro noted that the public does not understand key differences between investment advisors, financial advisors, financial planners and broker-dealers. Speaking of what many refer to as a divide between broker-dealers and investment advisors, she insisted that these two industries are in fact merging into one indistinguishable entity and should, therefore, be subject to the same standard of care.

“I believe that, when investors receive similar services from similar financial service providers, they should be subject to the same standard of conduct—regardless of the label applied to that financial service provider,” Schapiro said. “I therefore believe that all financial service providers that provide personalized investment advice about securities should owe a fiduciary duty to their customers or clients.”

In nearly the same breath, however, Schapiro insisted that such a standard is not enough, citing that one-third of the Ponzi-like schemes her commission has brought to action since she took the reins have included advisors subject to the fiduciary standard. She then announced her support for an overarching regulatory structure for broker-dealers and investment advisors.

“More needs to be done to effectively harmonize our regulatory structure for broker-dealers and investment advisors and meaningfully protect investors,” she said. “If both broker-dealers and investment advisors are providing virtually identical services to retail investors, then the regulatory regimes that govern these activities should be virtually identical as well.”

Some in the industry infer this to mean Schapiro is throwing her support behind making the Financial Industry Regulatory Authority (FINRA), the sole regulator for all financial advisory professionals, a topic of much controversy in the independent financial advisory world.

TARGET-DATE FUNDS

Schapiro also visited the issue of target-date funds, which are a popular retirement planning tool and recently became a qualified default investment vehicle for many 401(k) plans. The issue of investors’ understanding of these funds was top of mind, as the SEC and the Dept. of Labor held a hearing in Washington, D.C., Thursday regarding the funds’ potential need for further regulation and disclosure. Citing the average loss of the 31 funds with a target-date of 2010 during the recession (25%), Schapiro stated that there is too much variance in asset allocation between funds with the same target date.

As a result of the hearing, Schapiro said, the SEC will consider whether target-date funds should be allowed to include the target-date year in the their name. The commission will also discuss whether doing so is too misleading to the investor and if further clarification is needed regarding the asset allocation of the fund if its name does include the target date. Further, she stated that the commission will reconsider what it requires to be disclosed to investors of these funds.  

MUNICIPAL SECURITIES

Schapiro also expressed concern regarding the information that is currently available to investors of municipal securities. She called the current disclosure requirements “lacking compared to the information available to investors in public corporations,” and announced that she plans to ask the commission, as well as Congress, to improve the disclosure requirements to investors of these securities. The SEC also will hold a comprehensive review of 12(b)1-fees, annual distribution fees on mutual funds that are used to compensate broker-dealers or investment advisors, Schapiro said.

In the question and answer session following her speech, Schapiro insisted that “quite a few” fraud cases are in the commission’s pipeline.