When the Securities and Exchange Commission issued in January a study recommending a single fiduciary standard for broker-dealers and investment advisors, one might easily have surmised the SEC was prepared for the next step: drafting a proposed rule that defines the standard.
It's evident now that a harmonized standard is a long way from being realized–possibly years. That's my key take-away from a recent panel discussion on the topic. Hosted by the New York Law School on February 10, the event brought together six experts, including a top exec of the Financial Industry Regulatory Authority, Thomas Selman, who have analyzed the SEC's work on the standard to date.
Peering into the Report
Why the pessimism? Let's start with page one of the study, which notes that the commissioners expressed "no view regarding the analysis, findings or conclusions" contained in the staff-written, 208-page report. The hands-off stance, as SEC Chairman Mary Shapiro has acknowledged, is likely to slow progress.
Secondly, there is discord among the SEC commissioners. As pointed out by Michael Koffler, a panelist and partner at Sutherland Asbill & Brennan, New York, two of the five commissioners–both Republicans–disagreed with the decision to release the report, believing the subject requires further study.
Among their concerns is that the study draws conclusions without adequately explaining how investors are being harmed by the existing regulatory regimes: one for broker-dealers under the Securities Exchange Act of 1934; the other for investment advisors under the Investment Advisers Act of 1940. The dissenters also say the study fails to offer a well reasoned explanation as to how a uniform standard would enhance investor protection.
What is more, as the panelists noted, the study's recommendations lack specificity. The report concludes that a fiduciary standard should be "no less stringent" than the one currently applied to investment advisors; and that a harmonized standard should integrate the "best elements" of both B-D and IA regulatory regimes. Beyond these laudable objectives, however, the study offers no detailed blueprint for the path ahead.
Weighing the Key Issues
