PALM DESERT, Calif. -- The establishment of a fiduciary standard that applies to how broker-dealers should care for their customers is not likely to come until after the one-year anniversary date of passage of the 2010 Dodd-Frank Wall Street Reform Act that required it.
The setting of a standard that applies to broker-dealers as well as investment advisers could take months to resolve because of competing versions of the standard coming out of federal agencies. SEC staff has been meeting with stakeholders outside the agency to solicit their views before proceeding with rulemaking, Jennifer B. McHugh, senior advisor to Securities and Exchange Commission chairman Mary L. Schapiro, said Monday. She said staff is focused on the “practical, real world implications” of adopting a universal standard of care.
In 2010, the Department of Labor proposed a wholesale revision to its regulation that redefines what it means to be a fiduciary under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code.
This proposed definition will affect whether retail brokers, prime brokers, institutional trading desks, swap dealers, andothers who work with pension and 401(k) plans and IRAS will be deemed fiduciaries.
Early this month, the Department of Labor
But the SEC’s
Broker-dealers, she noted, typically have inventory in-house which they can use to satisfy customers’ interests in such stocks. Investment advisers, on the other hand, typically do not.
A big obstacle: Potential requirements to disclose each every such principal trade and … get consent. That could make the practice, even if allowed and defined, practically impossible, according to the McHugh and speakers on the “Regulatory Revolution” panel at which she appeared by video link.
Craig S. Tyle, executive vice president and general counsel at Franklin Templeton Investments, said that the fiduciary standard could affect mutual fund firms in some limited fashions.
In this case, the principal issue could be disclosing how a broker is compensated for selling a mutual fund. If there is a revenue-sharing arrangement that could influence a recommendation, that very well could have to be disclosed, in the name of fiduciary duty.
Such disclosures could be made online, which moderator Karrie McMillan, general counsel of the Investment Company Institute, said is a method of disclosure which should be increasingly used.
President Obama signed the Dodd-Frank bill into law on July 21, 2010.
But “after July” could mean the end of this year. The Department of Labor has only said it plans to issue its decision by the end of this year.
