In an effort to break a deadlock in the SEC’s effort to adopt a uniform fiduciary standard, a group of seven influential consumer groups and industry organizations – including the FPA, NAPFA and CFP Board – have provided the commission with a proposed roadmap for resolving the debate.

“I think there’s enough common ground here,” says lead author of the roadmap letter Barbara Roper, director of investor protection at the Consumer Federation of America, one of the seven groups. The compromise framework is based on a July 2011 letter from the Securities Industry and Financial Markets Association.

“I’m prepared to take SIFMA at their word that they would like SEC to move forward,” Roper says, “but it’s not so much SIFMA that is the major impediment but NAIFA [National Association of Insurance and Financial Advisors] whose brokers are selling investments by way of annuities. They are the ones who have lobbied for congress to intervene” and oppose an industry-wide mandate to place investors’ interests before their advisors, she says.

In response to concerns that a fiduciary standard would destroy existing commission-based sales model, Roper says that is simply not the case.

“Part of our point in the letter is that this opposition the rule is just unfounded,” Roper says. “There’s nothing about the fiduciary duty that precludes commission sales. The suggestion that a rule would limit peoples’ ability to charge commissions or sell proprietary products just isn’t supported by anything the SEC has said on this issue.”

However, people who portray themselves as financial advisors when they are no more than salespeople would and should have much to fear from a requirement, she says.

“If you have a fiduciary standard that has any teeth at all,” she says, “the sales practices for those brokers who are recommending those high-cost annuities are most at risk so it’s not surprising that that’s where you would find most resistance.”

In outlining the need for a mandate, Roper cites a Cerulli & Associates study that showed that of people with investable assets of $100,000 or less, 36% don’t know how they pay for advice and 40% think it’s free. “In that middle market,” Roper says, “76% are clueless about what they are paying. You have to get up to about $2 million in household investable assets before you get significant portions of the population who actually know what they are paying for the services.”

Other signers include AARP, Fund Democracy and Investment Adviser Association. Creation of a uniform fiduciary duty rule would accomplish the goal outlined the SEC’s January 2011 Section 913 study, which recommended the adoption of parallel rules imposing a uniform fiduciary duty on broker-dealers and investment advisers. The Section 913 study was a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

A copy of the 16-page framework letter can be found here. Comments from the letter’s signers are as follows:

Barbara Roper, director of investor protection, Consumer Federation of America:

“As markets become increasingly tumultuous and financial products become increasingly complex, investors desperately need advice they can rely on to help them achieve their investment goals.  The most important thing the SEC can do to support that outcome is to move forward on a rule requiring brokers to act in their customers best interests when providing personalized investment advice and recommendations.  Our letter is intended to help the SEC identify a way forward on rulemaking that can win broad investor and industry support, improve investor protections, and preserve investor choice.”

Mercer Bullard, founder and president, Fund Democracy:

“Investors should be able to depend on the legal protection they rightfully expect, which for personalized financial advice is the fiduciary standard -- regardless of the regulatory moniker assumed by the adviser. This letter cuts through the rhetoric of "accommodating industry practices" in setting forth a workable standard that focuses on the rights of investors whose interests financial professionals claim to serve.”

Joyce A. Rogers, senior vice president, AARP Government Affairs:

“Establishing a uniform fiduciary duty for brokers and investment advisers when they give personalized investment advice is of critical importance to older Americans who, with a lifetime of savings and investments, have more to lose and less time to recoup their losses when they receive poor advice.  They also are disproportionately represented among the victims of securities fraud and are deserving of the protection that a fiduciary duty to them would provide.”

Kevin Keller, chief executive officer, CFP Board of Standards:

“In a recent consumer survey conducted by CFP Board, we found that 67% of Americans believe that the government has a role in protecting investors from fraud and abuse.  Establishing a uniform fiduciary standard for broker-dealers is an essential step towards providing that protection.  CFP professionals have successfully delivered financial planning services, using a variety of business and compensation models, under a fiduciary standard of conduct so we know it can be done.  We join with other public interest, consumer and industry groups to offer the SEC a practical, common sense, framework for a fiduciary rule that works for both consumers and financial service professionals.”  

Marvin W. Tuttle, Jr., CAE, executive director and CEO of the Financial Planning Association: 

“We believe that adopting a true fiduciary standard ensures that clients are receiving personalized investment advice that is in their best interests, regardless of an advisor’s compensation or compelling interests. This letter provides a framework for the SEC to structure a fiduciary standard that truly balances the needs of retail customers with the business practices of investment professionals.”

David Tittsworth, executive director of the Investment Adviser Association:

“The Advisers Act fiduciary duty serves as a bedrock principle of investor protection and the IAA has long-supported its application to those who provide personalized investment advice about securities to retail clients.  The duty is well established and has been consistently interpreted by the courts and SEC for decades.  It is incumbent upon the SEC to not weaken it or otherwise dilute its investor protection benefits.”

Ellen Turf, CEO, National Association of Personal Financial Advisors:

"A strong fiduciary standard for anyone offering investment advice to the public will ensure the best interests of the client are front of mind at all times. A fiduciary standard is not only what you say to a client, but also how you act on their behalf.  This letter provides the SEC with a practical roadmap it can use to implement a single standard of care that will protect investors while restoring trust in the markets and in the advice the public receives."

Ann Marsh writes for Financial Planning.





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