(Adds details and comments throughout.)
By Suzanne Barlyn
March 1 The top U.S. 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 U.S. 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
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