* Brokerage execs say fiduciary rule may increase costs
* Potential rule could reduce client investing choice
* Executives want clear guidelines on potential rule
* Consumer group rejects SIFMA-commissioned cost study
(Adds detail on SIFMA study; Consumer Federation of America
By Helen Kearney
NEW YORK, Nov 8 Brokerage executives are
worried that a higher standard of care for brokers will curtail
investor choice and increase the cost of financial advice.
Executives told attendees at the Securities Industry and
Financial Markets Association's annual meeting on Monday that a
fiduciary standard requiring anyone giving personalized
financial advice to put their clients' interests first may have
"Our primary concerns are providing investors with choice
and being able to do it in a cost effective way," said James
Allen, Chairman and Chief Executive Officer of regional
brokerage firm Hilliard Lyons.
The Dodd-Frank Act directed the Securities and Exchange
Commission to conduct a six-month study into whether anyone
providing personalized financial advice should be brought under
a uniform fiduciary standard. Currently brokers must only meet
a lower "suitability" standard.
Chet Helck, Raymond James Financial's (RJF.N) Chief
Operating Officer, said the practical implications of a higher
standard need to be spelled out.
He pointed to the example of a client who had sold his
business and kept a large amount of stock in his company. Even
if the client wanted to stay invested in his former company,
would a financial adviser be obligated to tell him to diversify
his holdings because it is safer, Helck asked.
"A very strict interpretation could not accommodate
activities that a client wants," said Helck.
There is also a concern that the increased regulatory
burden under a fiduciary standard will force brokers to charge
more for financial advice, which may make it too expensive for
some smaller investors, said Kent Christian, President of the
Financial Services Group at Wells Fargo Advisors (WFC.N).
"For clients who fit a certain profile and below, it may be
difficult for the firm to continue to serve them profitably,"
The concerns echo a study SIFMA sent to the SEC last week
showing the potential costs for clients if a strict fiduciary
standard, such as the one currently governing investment
advisers, is imposed.
The study, conducted by consulting firm Oliver Wyman,
surveyed 17 brokerage firms overseeing a combined $6.8 trillion
of client assets. It found that investors have historically
paid 25 percent to 75 percent more for fee-based financial
advice compared with paying commissions on a brokerage
It concluded that forcing investors with $200,000 or less
to pay their adviser a fee based on their assets, rather than
pay commissions for individual trades or product purchases,
would reduce expected returns for the client by more than
$20,000 over 20 years.
The Consumer Federation of America rejected the study's
findings in a letter to the SEC on Monday.
The CFA said that the Dodd-Frank Act specifically stated
that charging commissions does not violate the fiduciary
However, brokers should be required to provide better
disclosures to clients about conflicts of interest they may
have, including the fact that they may receive a higher
commission for selling a certain product, and let the client
decide which model suits them, the CFA said.
"(The study's) authors either misunderstand or deliberately
misrepresent the effect of imposing a fiduciary duty,
invalidating the report's conclusions," wrote Barbara Roper,
CFA's Director of Investor Protection.
(Reporting by Helen Kearney; Editing by Jackie Frank and Tim