Tuesday, November 23, 2010

Securities Industry Seeks Nuanced Approach to Uniform Federal Fiduciary Standard for Advisers and Brokers

While generally supporting SEC regulations implementing a uniform federal fiduciary standard for investment advisers and brokers, the securities industry asks the Commission to adopt a nuanced approach to the standard recognizing that broker-dealers play an important role in retail brokerage, which cannot be easily replicated with alternative service models. In a recent letter to the SEC, SIFMA said that access to investment products traditionally offered on a principal basis (corporate and municipal securities) is more common and more affordable through commission-based accounts, particularly for small investors. The Dodd-Frank Act mandates an SEC study on advisers and brokers as a precursor to adopting a uniform standard of care.

The legislation does not prohibit commission-based compensation or other common elements of the broker-dealer service model, noted SIFMA, and a survey bears out the relative value of commission-based accounts. If these same brokerage services had to be provided under the existing provisions of the Investment Advisers Act, emphasized SIFMA, it would negatively affect client choice and access to products, such as those now available on a principal basis. Thus, SIFMA reaffirmed its support for a uniform federal fiduciary standard for broker-dealers and investment advisers who provide personalized investment advice to retail clients, but cautioned that the new standard must be “operationalized” to reflect the many different business models currently serving investors.