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IAA to SEC: Don’t Impose “Unnecessary and Ill-Fitting” Broker-Dealer Regulation on Investment Advisers

August 3, 2018

IAA Vice President, Communications & Marketing Herb Perone.


Washington, DC (August 3, 2018) – The Investment Adviser Association (IAA) is urging the Securities and Exchange Commission not to impose “unnecessary and ill-fitting broker-dealer regulation on investment advisers” as part of its package of proposals on standards of conduct for broker-dealers and investment advisers. On Monday, the IAA will file a second comment letter on other parts of the Commission’s standards of conduct package, including its Reg BI proposal, its Form CRS proposal, and the proposed interpretation of the Investment Advisers Act fiduciary standard.

In a letter responding to the Commission’s request for comment on “enhancing investment adviser regulation,” the IAA said that instead of thinking about applying broker-dealer rules to advisers, the Commission should focus on “raising the standard of conduct for brokers to match investors’ expectations regarding the advice they receive.”

The Commission ‘s request for comment raises questions relating to several areas “for potential harmonization of broker-dealer and investment adviser regulation” and identifies three specific areas – financial responsibility regulations, provision of account statements, and federal licensing and continuing education.

The IAA agreed with Commissioner Hester Peirce’s observation that these types of requirements would represent “a paradigm shift” in the principles-based manner the Commission regulates investment advisers. “We are concerned that ‘harmonization’ of investment adviser and broker-dealer regulation would result in an overly prescriptive, check-the-box regulatory regime that does not fit advisers’ businesses and is not consistent with the flexible principles-based fiduciary duty for advisers,” the IAA letter said. “Accordingly, we recommend the Commission refrain from any rulemaking in these areas.”

The broker-dealer regulations suggested in the Commission’s request for comment are “inapt for investment advisers, would not effectively address the Commission’s concerns, and are unnecessarily duplicative or burdensome,” the IAA said, asking the Commission to recognize that:

  • Investment advisers’ business models and activities differ significantly from those of broker-dealers. Given those differences, financial responsibility rules are inappropriate and unnecessary for advisers. Broker-dealer financial responsibility rules are intended to protect customers and creditors from losses and delays that can occur when a broker-dealer fails. But investment advisers’ activities do not present these risks. Most significantly, investment advisers do not hold client assets and the insolvency or failure of an adviser does not put client assets at risk. Current Advisers Act rules provide safeguards for the protection of client assets that are appropriate to advisers’ services.
  • A requirement for advisers to provide account statements would be duplicative. Investment adviser clients currently receive account statements from custodians. Further, the custodial account statement or an invoice from the adviser specifies the actual advisory fees clients pay.
  • Federal licensing and continuing education requirements for investment adviser personnel are unnecessary. Advisory personnel who engage with retail clients are already subject to state licensing and qualification requirements. The Commission has not explained why a second layer of licensing and qualification is warranted. Further, advisory personnel are subject to a range of compliance requirements and already receive training on the laws, regulations, and fiduciary obligations applicable to advisers. Finally, advisers already are required to provide clients with a description of the qualification, education, business background, disciplinary history, and additional compensation (including sales awards) for personnel providing advice for each client. This information is required to be affirmatively provided to each client for whom the advisers’ personnel are giving or formulating advice, and is far more relevant to a client assessing the qualification of such personnel than passing an exam. There is no such counterpart for broker-dealers.

The IAA’s full comment letter is available online.


About the Investment Adviser Association

The Investment Adviser Association (IAA) is the leading trade association representing the interests of SEC-registered investment adviser firms. The IAA’s more than 640 member firms collectively manage assets in excess of $20 trillion for a wide variety of institutional and individual investors. For more information, visit or follow us on LinkedIn, Twitter and YouTube.

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