SEC Chairman Jay Clayton has solicited public comment concerning the standard of conduct applicable to retail advisers and broker-dealers. The SEC seeks public input on such topics as the preferred standard of care, conflicts of interest, approaches to regulation, disclosure, technologies, and investor confusion. Mr. Clayton asks, “If the Commission were to proceed with a disclosure-based approach to potential regulatory action, what should that be? If the Commission were to proceed with a standards-of-conduct-based approach to potential regulatory action, what should that be? Should the standards for investment advisers and broker-dealers be the same or different? Why?” Mr. Clayton notes that the SEC last solicited such information back in 2013 but that rapidly changing markets, participants, and regulations require updated information. He welcomes coordination with the Department of Labor as it implements and re-considers the Fiduciary Rule. The SEC has set up a webform and email box to receive comments.
OUR TAKE: The SEC should adopt a uniform fiduciary or best interest standard for all retail advisers and broker-dealers, and the DoL should incorporate that standard rather than create a separate regime solely for retirement products. We hope that Mr. Clayton has begun the process to ending this internecine regulatory battle of agencies.
The Department of Labor has confirmed that its Fiduciary Rule will go into effect on June 9, although affected firms need not comply with all of the BIC exemption requirements until at least January 1, 2018. In an FAQ, the DoL confirmed that financial institutions and advisers must comply with the “impartial conduct standard,” which requires a duty of prudence (professional standard of care) and loyalty (advice in the best interest of the customer). However, firms have flexibility to determine how to ensure compliance with the best interest standard and may offer proprietary products with commissions if they ensure that they meet the impartial conduct standard and the advice is in the best interest of the customer. Firms should “adopt such policies and procedures as they reasonably conclude are necessary.” The DoL plans to seek additional information to determine whether to further delay full implementation or change the Rule, which applies to IRAs, ERISA plans, and IRC 4975 plans.
OUR TAKE: Can we stop now? We actually think the current state of affairs makes the most sense i.e. require a best interest standard without specifically mandating how firms must comply. The Investment Advisers Act takes that approach, and it has worked pretty well since 1940.