Six advocacy groups for fee-only advisors have banded together to pressure the SEC to modify its proposed rule package to distinguish — in black and white — the business model for fiduciary advice from that of the brokerage world.
Backers of the "Raise Your Voice" campaign are asking fee-only advisors to flood the commission with appeals to refine the current Regulation Best Interest proposal, which they say fails to adequately account for the different legally binding standards of care that advisors and brokers owe their clients. Participating groups include NAPFA, the Garrett Planning Network, the XY Planning Network, the Institute for the Fiduciary Standard, the Committee for the Fiduciary Standard and the Alliance of Comprehensive Planners.
"The campaign seeks to help the SEC understand how core differences divide advisors and brokers — and to also help RIAs appreciate how much the SEC views RIAs as no different from brokers," Knut Rostad, president of the Institute for the Fiduciary Standard, wrote in an email.
The SEC's proposal interprets "broker and advisor conduct as essentially the same, like identical twins," Rostad says in a separate statement.
"This depiction is confusing and wrong," he continues. "The legal, contractual, business and cultural differences dividing brokers and advisors are important, and must be clearly stated and explained."
SEC Chairman Jay Clayton has acknowledged the distinctions in the services that brokers and advisors provide their retail clients, but argues that the proposal extends the spirit of the fiduciary duty to the broker-dealer sector (though the commission carefully avoided using that term).
"[T]he principles are the same, and I believe the outcomes in both cases should be the same: retail investors expect high-quality advice where their investment professional is not placing their [own] interest ahead of the investor’s interest," Clayton told House lawmakers earlier this month.
The SEC is collecting comments from the public on the rules through Aug. 7.
In particular, fee-only advisors are concerned that, unlike them, brokers sell securities and insurance products and receive commissions for their sales. That means that in addition to the client, they are also working with — and arguably for — the issuers, creating an inherent conflict that sets brokers apart from fee-only advisors.
"Brokers are in a relationship of three," reads a campaign flier the advocacy groups are sending to advisors. "You're different. By law, you're a fiduciary. You must be loyal and always put clients first. You have no hidden partners. You're in a relationship of two."
The difference between a broker and a fee-only advisor is similar to that of a pharmaceutical sales representative and a doctor, says Jim Davis, president of the alliance's board of directors.
"Consumers shy away from asking for prescription advice from a pharmaceutical salesperson — they know that a trained medical doctor can help them make an informed choice," Davis says in a statement. "The SEC can best serve the public by making the differences between a financial salesperson and a fiduciary advisor crystal clear."
The groups intend to promote their campaign through their respective professional networks, which together reach thousands of advisors, Rostad says.
Asked if the groups will offer a template or sample letter for advisors unfamiliar with the SEC's comment process, Rostad says that they will offer "guidance," but not a prewritten letter to be reproduced in mass. In the public comment process on rulemaking proceedings, trade groups and lobbyists often prepare comment letters for members to submit in a bid to amplify their message, but the advisor groups are eschewing that approach.
"We will offer guidance, yes," Rostad says. "We'll leave it to the insurance and securities brokers to send 'ditto machine' boiler plate."