dodd-Frank does not require a rule,
just the already-completed study. but
internal pressure from the advisory and
retail investment world is mounting for
clarity and a standard rule—as has interest
among private firms advisors and some
consultants—for those selling life/annuity
insurance and other investment products
in the broker channel to live up to fidu-
ciary standards, voluntary or otherwise.
the Financial Planning Coalition,
which represents advisors, sent a petition
to the seC signed by more than 5,200 fi-
nancial planning professionals urging it to
apply a fiduciary standard to anyone pro-
viding personalized investment advice to
retail clients. the Coalition—which con-
sists of Certified Financial Planner board
of standards, the Financial Planning as-
sociation, and the national association of
Personal Financial advisors—represents
financial planning professionals across
the country.
While a rule for seC oversight of bro-
kers is expected this fall, it could be de-
layed for as long as another two years,
thanks to a number of potentially major
challenges.
one is the fact that the u.s. Court of
appeals for the d.C. Circuit has shaken
its saber at the seC in recent months, as
have House republican members on the
Financial services Committee, both zero-
ing in on doubts about the seC’s use of
empirical data to show economic effects
of would-be rules.
Language in a July 22 decision by the d.C.
Circuit that struck down an unrelated seC
rule allowing shareholder candidates for cor-
porate boards found fault with the economic
evaluation the seC had applied in instituting
the rule. the administrative Procedure act
of 1946 requires the agency to consider the
economic impact of a new rule.
the seC did not return a call for com-
ment on the fiduciary rulemaking process.
Meanwhile, smaller brokers and registered reps themselves are worried about
the costs imposed by new compliance
regulations.
Charles symington, the head of gov-
Let’s not lose
sight of the most
worrisome costs in
the current system—
excessive fees,
conflicts of interest
and inappropriate
retirement products.
ernment affairs for the Independent Insurance agents & brokers of america, said
that if a new fiduciary duty were overlaid
on top of suitability standards that already
apply to broker-dealers and registered
reps, it could drive some professionals out
of business. Ironically, this would deprive
investors of the sound advice they would
otherwise get, symington said.
Meanwhile, broker-dealers argue that
they are already subject to fiduciary-like
rules and are also subject to Financial
Industry regulatory authority (FInra)
oversight.
an excellent example put forth by the
broker community is a letter last year
from Gateway Financial in Pittsburgh, to
the seC to inform the then-uncompleted
study on the obligations of brokers, dealers and investment advisers.
“I currently am subject to an array of
state insurance regulations and oversight
for the sale of fixed and variable annuity insurance products,” stated the writer,
Margaret a. archinaco, director of client
services at Gateway Financial, which ap-plies life insurance in the areas of wealth
and estate planning. she noted a variety
of ongoing required and voluntary evaluations and training by dint of oversight by
state insurance regulators and federally,
by FInra.
a fiduciary standard requires firms and
people selling investment products to put
customers’ interests ahead of their own.
Insurance agents who sell products such
as variable annuities have traditionally
used a suitability standard, which requires
that they verify that a product sold to a
consumer suits the consumer’s needs.
but that does not mean that they are
putting the customer first, just that the
product is suitable. It does not have to be
the lowest cost or the best one under suit-
ability standards, but as some point out, it
does under fiduciary standards.
another setback for seC rules, is the
fact that this month, the u.s. department
of Labor went back to the drawing board
to better fine tune the definition of fiduciary in use for employee retirement Income
security act (erIsa) plans.
Phyllis borzi, director of the employ-
ment benefits security administration
(ebsa), an arm of the doL, stated in a
release that ebsa expects to make it clear
in the revised update proposal that “fidu-
ciary advice is limited to individualized
advice directed to specific parties.”
Congressiuonal democrats and repub-
licans, had both voiced concern that the
new doL definition would be too broad
and make a fiduciary out of unintended
employees and restrict investment choices.
and some in the investment industry
are worried that if they comply with the
seC, they could be out of compliance with
the doL. “If they coordinate, they can
write rules that comply with each other,”
said John Little, senior vice president for
federal affairs for the Insured retirement
Institute (IrI).
the doL is working with the seC to
come up with a fiduciary definition. It
won’t be a standard, one-size-fits-all, but
will likely have some overlap on the key
elements of fiduciary duty.
both agencies are likely to work more
closely in the fututre and have indicated
they will promulgate regulations imposing a single, uniform fiduciary standard
of conduct on both broker-dealers and
investment advisers, as naIFa stated in
recent testimony embracing FInra’s oversight.
Last February, seC Chairman schapiro
stated that the seC was helping the doL
