New SEC request may stall process 6 more months

Fri Jan 13, 2012 3:33pm EST

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(Reuters) - The Securities and Exchange Commission plans to request more data before finalizing a proposal requiring a uniform fiduciary standard for investment advisers and brokers. That could delay the start of the rulemaking process by another six months, securities industry observers say.

The process is already behind schedule. The SEC had previously said it would propose the rule in the second half of 2011.

SEC staffers are drafting a request to ask the public for more data to analyze the costs and benefits of an anticipated proposal that would harmonize duties of care owed to clients by investment advisers and brokers who give personalized advice, according to a recent letter from SEC Chairman Mary Schapiro.

"It is our hope that commenters will provide information that will allow Commission staff to continue to analyze the various components of the market for retail financial advice," Schapiro wrote in the letter to Republican U.S. Congressman Scott Garrett of New Jersey.

The SEC will likely give the public 45 to 60 days to respond once it publishes its request, and will need another 45 to 60 days to analyze the additional data, said Lynn Turner, former SEC chief accountant. The anticipated request could delay the SEC's unveiling of the controversial proposal until at least mid-year, Turner said.

An SEC spokesman declined to comment on Turner's estimate.

A study by SEC staff, released nearly a year ago, recommended applying a uniform fiduciary standard to investment advisers and brokers who give personalized advice. The study was required by the Dodd-Frank financial reform law. Dodd-Frank also authorized the agency to develop the new rules, but they are not mandated by the law.

Investment advisers are already subject to a fiduciary standard, requiring them to act in their clients' best interests. But brokers are held to a different standard and are only required to recommend investments that are "suitable," based on factors such as the client's age and risk tolerance. Those recommendations could include a range of products, including some that compensate the broker more than others.

Some investor advocates prefer the SEC's caution to speed. "As frustrating as this process is, I think it's a smart route for the commission to take," said Barbara Roper, director of investor protection for the Consumer Federation of America, a Washington, D.C.-based advocacy group. "We want a rule that could withstand a legal challenge."

Industry groups, including the Securities Industry and Financial Markets Association (SIFMA), have been pushing for cost-benefit analyses of various regulatory proposals which could affect their businesses. Industry observers say the SEC has also been taking extra precautions since a court blocked a proposed regulation on proxy access in July because the agency failed to determine the economic effects of the new rule.

Quantifying the benefits of a uniform fiduciary rule as compared to existing regulatory standards will be difficult, said David Tittsworth, executive director of the Investment Adviser Association.

SEC economists working on the broker fiduciary proposal have already reviewed and catalogued an array of data about the market for retail financial advice, including academic articles and surveys, according to Schapiro's letter.

The next hurdle will be waiting to see what kind of data emerges, Roper said. Data requests, while announced to the public, must often be fulfilled using information available through industry groups, she said.

A SIFMA spokesman declined to comment. A spokesman for Garrett acknowledged receiving Schapiro's letter on Thursday but declined further comment.

Requesting additional data doesn't guarantee the SEC will get the information it wants, Tittsworth said. "But it's certainly a good-faith effort to try to come up with the best data possible," he said.

(Reporting By Suzanne Barlyn; Editing by Jennifer Merritt, Bernadette Baum and Walden Siew; Additional reporting by Sarah N. Lynch)

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