Coalition Calls on SEC Not to Water Down Fiduciary Standard

hedge fund complianceOn July 5, the deadline approaches for comments on the SEC’s cost-benefit analysis of a potential uniform fiduciary standard that would apply to RIAs and B-Ds alike.

The fiduciary debate has been going on in earnest since January 2011 when the SEC published a Dodd-Frank-mandated study that recommended the creation of a uniform standard.  The study is a great read: it is extremely thorough and provides a great description of the current landscape. It also comes to the conclusion that investors are confused by two different standards and that some form of harmonization needs to be sought.

Now, with the deadline looming, anxiety is rising far and in between as to what a brave new fiduciary world would look like, anxiety that is in part fueled by the parameters used in the cost-benefit analysis.  On June 4, a broad coalition of interested groups sent a letter to SEC Chairman Mary Jo White, cautioning the agency against watering down the existing lay of the land and creating two sets of rules for different kinds of clients.

Some of the assumptions included in the SEC’s Request For Information (RFI) suggest that the SEC may be abandoning plans to require a new fiduciary standard that is “no less stringent” than the one RIAs must currently follow.

“The assumptions contained in the RFI fail to include key elements of the fiduciary standard such as the obligation to act in the best interest of the customer. If the fiduciary duty is based on the RFI assumptions, it would be weaker than that originally set forth in the Section 913 Study and far less stringent than that currently imposed under the Advisers Act,” the coalition stated.  “If the SEC were to adopt this approach, we fear that it would significantly weaken the fiduciary standard for SEC-registered investment advisers, while adding few new protections for investors who rely on broker-dealers for investment advice. This approach would have negative consequences for investors and is one we would vigorously oppose.”

The organizations signing the letter included the AARP, the American Institute of Certified Public Accountants, the Certified Financial Planner Board of Standards, the Consumer Federation of America, the Financial Planning Association, the Fund Democracy, the Investment Adviser Association, the National Association of Personal Financial Advisors and the North American Securities Administrators Association.

To join a very illustrious crowd, this author would also respectfully question the wisdom of abandoning a well-established body of law, which, when enforced properly, seems to provide ample protection of the best interests of clients – even if it’s for the sake of clarity.  I wonder what a consumer would think about this “improvement,” even if it means well.

As always, if you have questions or comments, please call, e-mail or tweet me @NYBusinessLaws.

Eckerle Law offers legal advice in a variety of transactional and regulatory matters and serves companies’ plenary business law needs. Its founder, Bettina Eckerle, is a veteran of Debevoise & Plimpton and Wachtell, Lipton, Rosen & Katz.  She also served as the General Counsel of two companies en route to IPO. Please visit the Eckerle Law website for more details.