To the surprise of no one, the SEC submitted a staff study to Congress a few days ago "recommending a uniform fiduciary standard of conduct for broker-dealers and investment advisors — no less stringent than currently applied to investment advisors under the Advisors Act — when those financial professionals provide personalized investment advice about securities to retail investors."
The study looking into obligations and standards of conduct of financial professionals, provided to Congress on Jan. 21, was required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The study notes that many retail investors do not understand and are confused by the roles played by investment advisors and broker-dealers, and are also confused by the standards of care that apply to investment advisors and broker-dealers. It further states that "retail investors should not have to parse through legal distinctions to determine" the type of advice they are entitled to receive. "Instead, retail customers should be protected uniformly when receiving personalized investment advice about securities regardless of whether they choose to work with an investment advisor or a broker-dealer."
Again to no one's surprise, statements of support and opposition from a variety of interested parties were quick to follow. None was quicker than a joint statement by SEC commissioners Kathleen L. Casey and Troy A. Paredes, who wrote separately in order to state for the record their views on the study and its recommendations. Here's an excerpt:
"In our view, the study's pervasive shortcoming is that it fails to adequately justify its recommendation that the commission embark on fundamentally changing the regulatory regime for broker-dealers and investment advisors providing personalized investment advice to retail investors. The study recommends the adoption of a new uniform fiduciary duty standard and harmonization of two disparate regulatory regimes. But it does so without adequate articulation or substantiation of the problems that would purportedly be addressed via that regulation. The study also does not adequately recognize the risk that its recommendations could adversely impact investors."
And their conclusion:
"Much is at stake. Americans invest trillions of dollars through broker-dealers and investment advisors. Regulation based on poorly supported recommendations runs the risk of restricting retail investors' access to affordable personalized investment advice and the range of products and services they currently enjoy.
