The SEC and FINRA apparently believe it is time to address the issue of whether to impose a uniform fiduciary standard on broker-dealers and investment advisers, but neither agency seems to have a clear view about timing.
At SIFMA’s annual meeting in mid-November, SEC Chair Mary Jo White told the delegates that resolving this issue is a “high priority,” but she has not imposed a timeline on the SEC staff. At the same meeting, Richard Ketchum, the head of FINRA, told the delegates that broker-dealers should worry less about the legal standard and focus more on acting in the best interest of clients ahead of any SEC rulemaking.
These comments arise in the context of Section 913 of the Dodd-Frank Act, which directed the SEC to conduct a study regarding the effectiveness of the existing standards of conduct and gave the SEC the authority, but not the obligation, to impose a uniform standard. A January 2011 study by the SEC’s staff recommended that the SEC propose a uniform conduct standard, but it has not yet done so.
That said, momentum appears to be building. Earlier this year, the SEC published a request for quantitative data and economic analysis relating to the benefits and costs that could result from imposing a uniform fiduciary standard (more information about that request can be found in our client alert). In late November, the SEC’s Investment Advisory Committee recommended that the SEC enact rules to impose a fiduciary duty on broker-dealers when they provide personalized investment advice to retail investors. The Committee said it favors narrowing the broker-dealer exclusion under the Investment Advisers Act and providing a safe harbor for brokers who do not engage in or hold themselves out as providing investment advisory services.
Although the SEC is under no obligation to act on the Committee’s recommendation, it is notable that the Committee was established under the Dodd-Frank Act for the specific purpose of advising the SEC on, among other things, initiatives to promote investor confidence and the integrity of the securities markets. If the SEC does act, whether it will follow the course suggested by the Committee or determine to establish a new standard specifically for broker-dealers engaged in advising retail accounts remains to be seen.
The SEC’s recently published Fall 2013 rulemaking agenda relegated consideration of uniform conduct standards to long-term actions. While this is not dispositive, it seems to indicate that consideration of this initiative is no longer on the SEC’s front burner.