Schwab IMPACT
Schwab IMPACT conference Photo by Diana Britton

Schwab IMPACT: SEC Should Consider B/D-Only Rules

Investment advisors prefer that the SEC leaves the Investment Adviser's Act fiduciary duty alone.

Industry advocacy groups have long disagreed on the approach the Securities and Exchange Commission should take on harmonizing standards for investment advice. But during a panel session on fiduciary issues at Schwab’s annual IMPACT Conference on Wednesday, advocates on both the broker/dealer and registered investment advisor sides agreed that the SEC should focus its attention on rules governing b/ds only.

Seventy-four percent of RIAs say the SEC should focus on b/d-only new rules, according to a Schwab Advisor Services’ advisory board survey. That compares to 13 percent who say investment advisors and b/ds should have the same rules, and 12 percent who say the SEC should make no rules in this area.

Just five years ago, about half of RIAs thought investment advisors and b/ds should be subject to the same rules when it comes to giving advice. 

“Investment advisors strongly prefer that the SEC leave the Investment Adviser’s Act fiduciary duty alone and just focus on broker/dealers,” said Karen Barr, president and CEO of the Investment Adviser Association.

RIAs saw where the SEC was heading, and were afraid that the regulator was going to water down the Adviser’s Act fiduciary standard, which they’re currently subject to. The Investment Advisers Association is also concerned the SEC will impose a b/d rule set—more appropriate for a transaction-based model—on investment advisors.

“One of our concerns is disharmonization, which investment advisors right now are subject to the same investment advisor fiduciary duty with respect to their retail clients and their institutional clients,” Barr said.

If an advisor then does something different for retail clients, then it’s disharmonized for investment advisors with respect to different clients.

The Securities Industry and Financial Markets Association has long been in the harmonization camp, encouraging the SEC to also look at whether enhancements were needed to the RIA structure, as well as the b/d structure, said Ira Hammerman, general counsel at SIFMA. The organization has since evolved its thinking.

“We think it would be good enough for the SEC to focus on the broker/dealer standard and develop the best interest standard of care that would be heightened from the current standard,” Hammerman said.

He believes the Department of Labor, which passed its fiduciary standard last year, should stay out of fiduciary issues.

“I’d like the DOL to focus on ergonomic chair design and leave this issue to the SEC,” Hammerman said. “The SEC is the primary securities regulator.”

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