| CHARLOTTE, N.C./NEW YORK
CHARLOTTE, N.C./NEW YORK The U.S. brokerage industry should have a common, tougher standard for providing investment advice, Bank of America Corp wealth chief Sallie Krawcheck said on Monday.
The Securities and Exchange Commission on Friday proposed extending the fiduciary standard -- which forces financial advisers to place their clients' interests above their own -- to brokers when they advise individual investors, one more step toward resolving a long-running debate.
Krawcheck said it was too early to tell how rules pending before the SEC would affect Merrill Lynch, the bank's brokerage unit, but she contends the maze of current rules and industry labels is too confusing. Wall Street, she said, should also use "plain English" when communicating with clients.
"You should not require a client base to have a Ph.D. in regulatory science to figure it out," Krawcheck, the bank's president of global wealth and investment management, said in a conference call with reporters.
In addition to running the second-largest U.S. brokerage, Krawcheck has supported stronger government oversight after the financial crisis destroyed trillions' in value for investors worldwide. Wall Street had long fought to avoid the fiduciary standard, but was forced to accept it after the financial crisis raised lawmakers' hackles.
The Dodd-Frank Act, the historic regulatory reform law enacted last summer, called for the Securities and Exchange Commission to study making the standard universal.
The SEC and the U.S. Congress have wrestled over the past year with how to increase investor protections.
Brokers are now required only to make investment decisions that are consistent with clients' broad needs, known as the "suitability" standard. It is a lower threshold than that used by registered investment advisers, who are regulated by the SEC and are bound by the "fiduciary" standard, meaning they must place a client's financial interests ahead of theirs.
Wall Street critics have long complained that brokers are tempted to encourage trades or tout certain investments that can be rewarding for themselves and their firm, though such transactions may not necessarily be in the client's best long-term interests.
Among other things, the SEC report observed that many investors do not realize that brokers -- often advertised as "financial advisers" -- are not required to work in the client's best interests. Registered investment advisers, by contrast, are beholden to serve as fiduciaries.
While this would appear to pose a challenge for traditional brokerages, Krawcheck told reporters she ultimately expects both investment advisers and brokers will be affected by the Dodd-Frank reforms.
Congress is trying to decide how to more closely examine investment advisers, who on average are reviewed by the SEC once every 11 years.
The SEC last week issued another report that offered Congress three options: create a new self-regulatory body for advisers, make advisers answer to brokerage regulator FINRA or give the SEC resources to expand adviser oversight.
"We want to make sure we have the entire wealth management industry held to a high standard," Krawcheck said, echoing statements she made in April to an industry conference.
Many of the details on how to apply the new fiduciary standard must still be ironed out by the SEC commissioners, Krawcheck observed.
In any case, these changes will likely pose a challenge to Bank of America, a bank whose wealth management businesses span everything from Merrill's traditional brokerage to U.S. Trust's private bank for the ultra-rich, to the recently launched Merrill Edge online service for "mass affluent" investors.
Merrill Lynch had 15,498 advisers at the end of 2010 managing $1.58 trillion of client assets, according to the bank on Friday.
Bank of America officials on Monday also discussed the ongoing integration of Merrill Edge with the country's largest consumer bank.
Launched last June, the online brokerage had $60 billion of client assets under management and is a key part of the bank's renewed effort to court the "mass affluent.
Under a new account plan, customers with $50,000 to $250,000 in assets get perks for bringing their investments to the bank.
The company recently moved Dean Athanasia, who oversaw Merrill Edge as part of Krawcheck's wealth management division, to oversee all of Bank of America's "mass-affluent" efforts in the consumer bank. Athanasia now reports to Joe Price, BofA's president of consumer and small-business banking.
Krawcheck said she and Price are working to bring the consumer bank and brokerage divisions closer together, with Merrill Edge as a key initiative.
"To the extent we can knit this together, we will be able to provide services across the family" of clients, she said.
(Editing by Lisa Von Ahn, John Wallace, Steve Orlofsky, Dave Zimmerman)