SEC Fiduciary Standard

Overview

“The SEC’s report recommended that the SEC address retail customer confusion about the standard of conduct required of investment advisers and broker-dealers, and enhance retail customer protection.”

Under current law, investment advisers are subject to a stringent overarching fiduciary duty that requires investment advisers to act in the best interests of clients and to place the interests of clients before their own. Broker-dealers providing investment advice are not subject to such a standard if they (1) provide investment advice “solely incidental” to the conduct of their business as a broker-dealer, and (2) receive no “special compensation” for such services. Section 913 of the Dodd-Frank Act required the SEC to evaluate the effectiveness of existing standards of care for broker-dealers, investment advisers, and their associated persons in providing personalized investment advice about securities to retail customers, and whether there are gaps, shortcomings or overlaps in those standards. In addition, the Dodd-Frank Act authorizes (but does not require) the SEC to adopt a uniform fiduciary standard of conduct for investment advisers and broker-dealers when providing personalized investment advice about securities to retail customers. The Dodd-Frank Act provision also states that any resulting uniform fiduciary standard must be no less stringent than the existing fiduciary standard under the Advisers Act.

After requesting and receiving comments from the public, including the IAA, the SEC staff issued the required report in January 2011. The report recommended that the SEC address retail customer confusion about the standard of conduct required of investment advisers and broker-dealers, and enhance retail customer protection. In March 2013, the SEC issued a request for data and other information regarding a potential uniform fiduciary standard of conduct, seeking assistance in determining whether to engage in rulemaking concerning such a standard of conduct. The IAA filed a comment letter in response, and the comment period for the SEC request closed on July 5, 2013. The SEC has not yet taken further action, but a November 2013 recommendation from the SEC’s Investor Advisory Committee urges that the SEC conduct a rulemaking on this subject. SEC Chair Mary Jo White stated in early 2014 that the SEC’s evaluation of this issue is “an immediate and high priority.”

Position

“All financial professionals who provide investment advice about securities to clients should be subject to the same high standard of care – the fiduciary duty standard under the Advisers Act.”

The IAA has long advocated that all financial professionals who provide investment advice about securities to clients should be subject to the same high standard of care – the fiduciary duty standard under the Advisers Act. The IAA has urged the SEC to ensure that any rulemaking imposing a uniform fiduciary duty preserves the existing overarching fiduciary principles in the Advisers Act to act in the best interests of their clients. Further, the IAA opposes any effort that would “water down” the existing fiduciary standard by suggesting that disclosure alone would satisfy its requirements or by reducing the overarching duty to a prescribed set of rules.

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