Separate But Equal: SIFMA Weighs In On What It Wants A "Fiduciary Broker" To Look Like

Friday, July 15, 2011 05:53
Separate But Equal: SIFMA Weighs In On What It Wants A

 If the lobbying group for big brokerage firms had its way, the "universal" fiduciary standard laid out in the Dodd-Frank Act should be applied in different ways for brokers and investment advisors.


The Securities Industry and Financial Markets Association sent Mary Schapiro a 24-page open letter yesterday detailing its thoughts on a broker fiduciary standard.


As SIFMA points out, Dodd-Frank mandates "no less stringent" rules for how brokers should manage their relationships and responsibilities to clients than those that investment advisors currently obey.


However, no less a figure than Barney Frank, co-author of the reforms, has pointed out that "no less stringent" doesn't necessarily mean applying the Investment Advisers Act of 1940 to everyone, SIFMA argues.


If that were the case, Dodd and Frank would have just eliminated the broker exemption in the IA Act. 


So instead, SIFMA wants an all-new fiduciary standard for brokers.


Naturally, that will take time and effort to rough out -- the SEC will have to figure out how to define "investment advice" in a sales-driven context -- and would have to allow for clients to opt out of clearly disclosed conflicts of interest.


That last bit is interesting, since "conflict of interest" usually means that the advisor is working against the client in some way.


Perpetuating situations where such conflicts "may be consented to by the customer" seems to indicate an urge to steer accounts toward less-than-optimal products that enrich the "fiduciary" advisor and only act as a drain on the client's resources or performance.


SIFMA's lawyers also want any fiduciary relationship to apply to brokers on an account-by-account basis, as it currently does with dual-registered advisors. Once the client signs the contract, the fiduciary responsibility would begin.


In general, SIFMA is happy with its member firms' reps being regulated like investment advisors in most other spheres: advertising, supervisory requirements, licensing and registration, books and records, and so on.


But while they're now willing to consider a fiduciary rule, they still want two different playing fields.

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