February 8, 2011 / 4:43 PM / 8 years ago

FINRA urges firms to gear up for fiduciary duties

* FINRA chief: Firms should prepare for fiduciary duty now

* Comments follow SEC call for fiduciary standard

* SEC may require brokers, advisers to put customers first

By Sarah N. Lynch

WASHINGTON, Feb 8 (Reuters) - Brokerage firms should start preparing now for the development of new rules that would require brokers and advisers to put their retail customers’ interests first, a top securities regulator said on Tuesday.

Richard Ketchum, chief executive of the Financial Industry Regulatory Authority, said brokers and advisers offering retail advice to customers should immediately start reviewing how they recommend products and disclose conflicts of interest, without waiting for new regulations from the Securities and Exchange Commission.

Firms should go through “a regular and consistent review of their conflicts,” he told an audience of industry compliance staffers at a conference at the SEC’s Washington headquarters.

“You can’t provide effective disclosure of your conflicts ... if you are not regularly debating in your firm what they are,” he said.

Ketchum’s comments come just a few weeks after the SEC released a study required by the Dodd-Frank financial reform law that looked at discrepancies in how brokers and investment advisers are regulated. The study called for a uniform fiduciary standard “no less stringent” than what investment advisers face today; advisers are required to put their retail customers’ best interests first.

Under current regulations, brokers are only required to recommend products that are “suitable” to mom and pop investors. This has raised concerns among some who fear that a broker could offer certain products to investors because the broker will make more money, even if the product is not in an investor’s best interest.

The SEC study called for a uniform standard that would require brokers and advisers to avoid conflicts of interest where they can, and disclose other conflicts in a manner that is clear for investors.

The issue has been a top priority for SEC Chairman Mary Schapiro, who on Tuesday said she has “long believed retail investors deserve a fiduciary standard of conduct” and called on the industry to provide feedback to the SEC. The Dodd-Frank law gives the SEC the power to develop a uniform standard now that the study is finished.

Ketchum said disclosure will be an important element to developing the rules, but that disclosure alone “is not enough.”

He called for clearer, better disclosures that will not be “simply tossed in the waste basket” by investors because they are too tough to understand. (Reporting by Sarah N. Lynch; editing by John Wallace)

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