Skip navigation
SEC building Copyright Mark Wilson, Getty Images

CFA Institute Proposes Preliminary SEC Solution on Fiduciary Standard

The organization calls on the SEC to clarify existing requirements. Meanwhile the regulator is accelerating work on its own fiduciary rule.

In a letter to the Securities and Exchange Commission, the CFA Institute proposes a preliminary solution to a formal fiduciary standard to provide more clarity around advisor titles. The organization calls on the SEC to take action in three areas, which can be accomplished through administrative guidance or direct rulemaking on existing requirements. At the same time, the SEC plans to accelerate work on its fiduciary rule and expects a proposal by the end of the second quarter, according to reports by the Wall Street Journal

“We believe there is a current opportunity to make progress on this goal and on addressing longstanding investor confusion about those who provide investment services,” the CFA letter states. “Specifically, investors deserve to know and understand who is across the financial services table from them. Is it someone providing them with personalized investment advice under a fiduciary duty or someone who represents a financial firm and is selling them financial products?”


The CFA’s policy team is currently meeting with folks on Capitol Hill to get more information about the SEC’s accelerated plans. A spokeswoman for the SEC declined to comment. 

In the letter, the organization first proposes the SEC clarify the definition of “investment adviser” under the Investment Advisers Act of 1940 to include “all who provide personalized investment advice.” That way individuals who provide such advice will be subject to a fiduciary standard as registered investment advisors. The SEC can do this by issuing administrative guidance, the CFA argues.

Secondly, the regulator should clarify what constitutes “incidental” in the Advisers Act. A section of the Act says brokers or dealers are excluded from having to register as investment advisors if the advice they’re providing is “solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor.”

The CFA argues reliance on this exclusion is widespread and many brokers now use the title “financial advisor.” If that’s how they describe themselves and the work that they do, it doesn’t make sense that it’s incidental.

The organization recommends the SEC issue guidance to clarify that providing personalized investment advice or calling oneself a “financial advisor” is not incidental to the work of a broker.

Thirdly, the group calls on the SEC to issue a rule, requiring brokers to disclose to clients their roles as agents of the brokerage firm and that they’re not legally obligated to act in their clients’ best interest.

These three steps would “impose limited, if any, additional regulatory costs on broker/dealers who use the advisor title most frequently, and would not affect their business models,” the CFA letter argues.

TAGS: Industry
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.