NEW YORK (Reuters) - As Wall Street braces for a tougher set of consumer protection rules from U.S. regulators, Royal Bank of Canada’s U.S. wealth management chief says investors and the market would suffer under a single-standard approach.
The executive, John Taft, said the rules should vary according to the functions that brokers serve, from trading and planning to insurance and lending.
“A one-size-fits-all solution does not work,” Taft, who is also chairman-elect of SIFMA, Wall Street’s lobbying group, told Reuters in an interview on Monday. “The people who are advocating a one-size approach to the fiduciary standard only offer one size: they’re investment advisers.”
A fiduciary standard in simple terms requires an adviser to always put his client’s interests first. Brokers are required to make “suitable” recommendations, a far easier standard.
Following trillions of dollars of losses in the 2008 financial meltdown, regulators pushed Congress to impose the tougher fiduciary standard on anyone who provides personal financial advice to individuals.
SIFMA last year said it supported a single standard for brokers and investment advisers.
Congress hammered out financial regulatory reforms last week, but the rules will be written by the Securities and Exchange Commission following a six-month study.
When the SEC gets to work on drafting the rules — and Taft says there is no question a fiduciary standard is coming — it ought to take into account the many ways clients work with full-service brokers, he said.
“If you want to take the standard for investment advisory activity and extend it to a full-service wealth management firm’s range of products and services, you’ve got to change it,” he said. “It has to be tailored to different activities.”
Taft, and the brokerage industry, contend that individuals want one-stop shopping for all their financial services. Under a strict financial advisory standard, he said, brokers would no longer be allowed to extend credit or sell insurance.
Complicating the matter, Taft said, is the fact that the “fiduciary standard” does not appear in the laws that govern brokers or investment advisers, with the exception of the ERISA public pension plan rules.
Under the glare of investor and industry scrutiny, the SEC will be under the gun to draft such a standard. Which means the sparring over a higher standard for all wealth managers, rather than being over, is simply moving from Congress to a new battlefield.
And the brokerage industry intends to keep fighting.
“Whatever you do, don’t compromise the ability of individual investors to walk in the doors of a wealth management firm and get all the products and services they get today in one place,” Taft said. “If you do that, you haven’t helped the investor, you’ve harmed him.”
Reporting by Joseph A. Giannone, editing by Matthew Lewis and John Wallace