Brokers Willing to Pay Up for Fiduciary Standard: SIFMA

SIFMA surveyed 18 of its member firms — 12 large BDs and six regional ones — to arrive at the $8 million in additional compliance costs under a fiduciary standard. SIFMA said that it focused on two specific areas where its members believe they would be hit hard by a fiduciary rule — the costs of developing and maintaining a disclosure form similar to Form ADV Part 2A, and the costs of developing and maintaining new supervisory systems, procedures and training programs to implement the new standard.

SIFMA noted in its comment letter that as the SEC has not issued a "concrete" fiduciary proposal yet, "it is not possible to adequately identify and estimate all the costs of establishing a uniform fiduciary standard."

The coalition used Cerulli Associates data from 2007 to back up its argument that the conversion of non-fiduciary, fee-based brokerage accounts to fiduciary, nondiscretionary advisory accounts would impose "little if any additional cost or burden." The coalition notes that Cerulli found that, even after the broad market declines of 2008, the client assets in nondiscretionary advisory accounts rose by almost 75% from approximately $329.6 billion at the end of the conversion process in 2007 to $574 billion in the third quarter of 2012.

Meanwhile, the coalition writes, "the level of fees charged to customers for this service model at the major national firms has stayed flat or decreased since 2007. In sum, the experience of converting fee-based (non-fiduciary) brokerage accounts to nondiscretionary advisory (fiduciary) accounts demonstrates that the expense of operating under a fiduciary model has not prevented the number of accounts and level of assets in those accounts from continuing to grow."

Of the 800 advisors who responded to Schwab's survey, the respondents reported that harmonizing advisor and BD rules in the areas of licensing, registration and continuing education would have the greatest burden, followed by books and records and supervision requirements, with duty of care coming in last.

The coalition also told the SEC to hold off on harmonizing BD and advisor rules until it adopts a fiduciary rule, as the two issues are "conceptually distinct" and should be analyzed on their "own merits." While a fiduciary standard of care is "a relatively simple concept to adopt and apply and will have immediate benefits to customers," harmonization "is a more time-consuming process requiring the comparison and evaluation of many different rules."

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Check out SEC Gets an Earful From Advisors on Fiduciary Standard.