WASHINGTON -- Advocates for stronger fiduciary rules are calling on the head of the SEC to move forward with a proposal to impose a uniform standard of care for brokers and investment advisors, even if that means pushing the rules through a divided commission split along party lines.
On a conference call to kick off what they have dubbed "Fiduciary September," supporters of a uniform standard acknowledged that there is no consensus on the issue within the SEC for what they see as a common-sense investor protection -- that financial professionals serving the retail market should dispense advice that's in the best interest of their clients.
"This should not be a partisan issue," says Barbara Roper, director of investor protection at the Consumer Federation of America.
But with Republican commissioners Daniel Gallagher and Michael Piwowar having expressed skepticism about the merits of a uniform fiduciary rule, Chairman Mary Jo White could only proceed with a 3-2 party-line vote. If that's the case, "so be it," Roper says. "The chair must be willing to take that vote."
In remarks at a conference earlier this year, Gallagher said he was not convinced that a uniform standard would address "issues of investor confusion," or that "the costs don't outweigh the benefits."
"I'm not there yet," Gallagher said.
The SEC's consideration of a uniform fiduciary standard stems from the Dodd-Frank Act, which granted the commission the authority to write rules aligning the standards governing the brokerage and RIA sectors, but did not mandate that it do so. White has said that she feels some action is needed to address confusion among investors, who often do not know about the different standards of oversight among RIAs and advisors.
Brokers generally are only required to make recommendations deemed suitable for their retail investors, which is generally regarded as a less stringent standard than the fiduciary obligations that compel advisors to act in the best interests of their clients.
Roper warns that the convergence of the two professions has sewn confusion among investors, particularly when brokers bill themselves as advisors, but are not required to put their clients' interests before their own when making recommendations.
"As a result they are indistinguishable to the investing public. But brokers aren't advisors, at least not legally. They're salespeople," she says. "That is not what people expect -- and have every right to expect -- when they consult an investment advisor."
White has said that she has directed SEC staffers to develop a menu of options for how to proceed with any potential fiduciary rulemaking.
Fiduciary advocates are also reiterating support for a separate and more controversial proceeding underway at the Department of Labor, which is considering rules to apply fiduciary responsibilities to advisors working with retirement plans.
Supporters of the DoL's fiduciary proposal argue that tighter rules to guard against conflicted advice in the IRA and 401(k) sector are long overdue in the defined-contribution era, when individuals shoulder more of the responsibility for saving and planning for retirement.
"Individuals bear the ultimate risk of getting it right or suffering real consequences for their income security in their retirement years," says David Certner, legislative counsel and legislative policy director at the AARP. "The reality is that most people lack the skills, the time, the information to make these decisions."
Critics have blasted the proposal, warning that it would regulate the commission-based model out of existence and cause advisors to abandon the retirement segment in droves, leaving millions of workers without access to much-needed advice.
The contentious proceeding at the Labor Department has sparked opposition from dozens of lawmakers and industry groups such as the Financial Services Institute. Labor has pushed back the target date for issuing its proposal to sometime early next year.
Kenneth Corbin is a Financial Planning contributing writer in Washington.
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