Both the SEC and FINRA believe that the question of whether a uniform fiduciary standard should be imposed on broker-dealers and investment advisers needs to be resolved. The problem is, neither one seems to have a view about when that might happen.
On Wall Street reported that SEC Chair Mary Jo White told the delegates at SIFMA’s annual meeting this week that resolving this issue is a “high priority” but she has not imposed a timeline on the SEC staff. “Any time you have the same conduct regulated differently,” White was quoted as saying, “you need to take a very close look at that and see what to do about it.”
Meanwhile, Investment News reported that Richard Ketchum, the head of FINRA, told the SIFMA delegates that broker-dealers should worry less about the legal standard and focus more on acting in the best interest of clients ahead of any SEC rulemaking.
These comments arise in the context of Section 913 of the Dodd-Frank Act, which directed the SEC to conduct a study regarding the effectiveness of the existing standards of conduct and gave the SEC the authority, but not the obligation, to impose a uniform standard. The SEC staff’s January 2011 study recommended that the SEC propose a uniform conduct standard, but the SEC has not yet done so. Earlier this year, however, the SEC published a request for quantitative data and economic analysis relating to the benefits and costs that could result from imposing a uniform fiduciary standard (more information about that request can be found in our client alert). At least one estimate of the cost side of the ledger has surfaced: Investment News reported that at the Schwab Impact Conference in Washington, D.C. last week, an estimate pegged the cost of harmonizing these standards at approximately $1 billion.
These three reports don’t really move the ball forward. That said, they do make clear that:
- the SEC has no timeline for proposing a uniform fiduciary standard for broker-dealers and investment advisers;
- regardless of SEC rulemaking, FINRA believes that broker-dealers should consider if they need to focus more on acting in the best interest of clients; and
- whenever rulemaking occurs, it’s probably going to cost a lot.