SEC seeks data for possible broker fiduciary plan

Fri Mar 1, 2013 6:41pm EST

A woman waits for an elevator in the foyer of the Fort Worth Regional Office of the Securities and Exchange Commission (SEC) in Fort Worth, Texas June 28, 2012. Picture taken June 28, 2012. REUTERS/Mike Stone

A woman waits for an elevator in the foyer of the Fort Worth Regional Office of the Securities and Exchange Commission (SEC) in Fort Worth, Texas June 28, 2012. Picture taken June 28, 2012.

Credit: Reuters/Mike Stone

(Reuters) - The top securities regulator issued a sweeping, long-awaited request to the financial services industry and the public on Friday for information that could help determine whether to require beefed-up ethical standards for retail brokerage firm advisers.

The Securities and Exchange Commission, in a 72-page document, asked for data related to possibly changing standards of conduct that apply to certain types of financial advisers.

At issue is a long-running controversy about the differences in responsibilities toward clients for securities brokers, who register with the Financial Industry Regulatory Authority (FINRA), and registered investment advisers (RIAs), another type of financial adviser that is overseen by the SEC.

While RIAs must act as fiduciaries - that is, putting the best interest of clients first at all times - brokers now need only recommend securities that are "suitable" for clients, based on factors such as risk tolerance and age. Studies including one commissioned by the SEC show that investors are confused by the distinction between the two types of advisers.

The Dodd Frank financial reform law authorized, but did not require, the SEC to develop rules that would align the different ethical standards for brokers and RIAs. The SEC, however, has not yet determined whether to exercise that authority, according to the request.

Regulators are especially interested in economic data and other details that can help it determine potential costs and benefits to the industry and investors by changing existing standards. That could include details about how the different advisers counsel clients about what type of account to open or information details about conflicts of interest at both types of firms.

The SEC asked respondents to consider various scenarios for purposes of crafting their replies, including that charging commissions for securities transactions, as brokerages typically do, would not run afoul of a fiduciary duty. Other scenarios include a public "relationship guide" for brokers similar to one in which RIAs now disclose their conflicts of interest.

Those scenarios, however, do not suggest the "ultimate direction" the SEC may follow, it said. The call by the SEC encourages those who submit information to look at other scenarios if they disagree with its own.

"They are trying to make clear that they are entering this process with an open mind about what it can be," said Barbara Roper, investor protection director of the Consumer Federation of America, a Washington-based advocacy group.

"Gathering further data is the appropriate next step forward," said Ira Hammerman, general counsel of the Securities Industry and Financial Markets Association (SIFMA).

SIFMA, which has pushed for the SEC to conduct thorough cost-benefit analyses of rules it develops, supports a uniform fiduciary standard for brokers and advisers, said Hammerman. SIFMA, however, wants the SEC to craft one that accommodates certain existing practices, such as selling brokerage-branded mutual funds, which can be more costly for investors.

Investment advisers are already concerned. The request asks questions about areas in which investment adviser regulation could be made more similar to broker-dealer regulation, said Neil Simon, vice president for government relations at the Investment Adviser Association in Washington.

The SEC will collect responses for 120 days after its request appears in the Federal Register, the U.S. government's publication for many agency notices.

(Reporting By Suzanne Barlyn; Editing by Kenneth Barry and Diane Craft)

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