What the Securities and Exchange Commission wants from a new and universal fiduciary standard for the retail investment community, and what will most likely materialize, figure to be two different stories.
That was the consensus from a panel of academics, attorneys and regulators gathered at New York Law School on Feb. 10 to address the challenges and opportunities that will likely follow the SEC's recent mandate to create and enforce a uniform fiduciary standard for broker-dealers and financial advisers.
When the SEC issued a report in January at the behest of Congress and the Dodd-Frank Act, financial advisers, broker-dealers and their attorneys zeroed in on every detail. But panelist Michael Koffler, a partner in charge of the financial services group at Sutherland Asbill & Brennan, said the report reads like a boilerplate prospectus.
"We're no closer to an endgame than we were before the report, maybe even further away," Koffler said. The report itself has a disclaimer that the study reflects the views of the SEC staff and not the commissioners themselves.
Rick Ketchum, president and chief executive of the Financial Industry Regulatory Authority, said earlier this month that legislation on the fiduciary standard would almost certainly be delayed until the fall and it was highly unlikely exam replacements would occur until late 2012 at the earliest.
"A lot of folks thought after Dodd-Frank, there would be a clear path," Koffler said. "Maybe there would be some rulemaking in four to five months and this would take effect sometime in 2012. That's not going to happen."
What has happened is that constituents from both sides of the broker-dealer and financial adviser camps are gearing up for what figures to be a protracted series of reports and baton-passing between Congress and the SEC. In the interim — in addition to bolstering their lobbying war chests and crystallizing their official positions on the matter — they're spending considerable time and money to update their technology platforms, disclosures and internal policies in anticipation of future regulation, whatever it may be.
If and when a final determination is made as to exactly how a fiduciary standard should be implemented and, more important, enforced, all the panelists agreed some changes to protect investors — without hamstringing advisers and broker-dealers — are long overdue.
"There's no doubt that we as an industry need to increase investor protections," said Tom Bradley, president of TDA International and the event's keynote speaker. "But the mantra here has to be better regulation and not necessarily more regulation."
Bradley concedes that going back as far as the dot-com implosion in the late 1990s and more recent scandals like the mortgage-backed securities and Ponzi debacles, the financial services industry has deservedly earned a black eye in the view of most investors.
"We have a major PR problem," he said. "But the good news is that it can be fixed. We can make it better."
Because most brokerage firms are now registered and have an RIA umbrella, Bradley said, any regulator efforts — whether by the SEC, a self-regulatory organization like Finra or individual states — should perhaps focus more on forcing financial institutions of all types to develop a more pure and transparent sales model that draws a "clear and crisp line," so investors can easily understand the motivations of brokers and financial advisers.
"What it should be about, really, is putting clients first," said panelist James Fanto, a professor at Brooklyn Law School. Financial advisers and brokers "are there to give investors advice, and not use them as a profit center."
