An internecine battle has broken out on Capitol Hill over how the Securities and Exchange Commission should enforce a blanket fiduciary standard for all financial advisers.

Advisers regulated by the Financial Industry Regulatory Authority, a self-regulatory organization, are squaring off against advisers registered with the SEC.

At issue is whether Finra's suitability requirement adequately protects retail investors — Section 913 of the Wall Street Reform and Consumer Protection Act of 2010 implicitly implies it doesn't — or whether all advisers should be held to the more stringent fiduciary standard.

The argument has simmered for a long time. Back in 2005, the SEC famously exempted Series 7 financial advisers from having to adhere to the Investment Advisers Act of 1940's fiduciary standards in what became known as the Merrill Rule. Registered investment adviser groups have pushed for the exemption to be lifted ever since, commissioning the RAND Institute Report in 2008, which was intended to prove to the SEC that investors didn't know the difference between a brokerage relationship and an advisory relationship.

With Section 913 in the works, the iron is red hot again and the Financial Planning Coalition, in a comment letter to the SEC on Aug. 30, is not missing its opportunity to once again urge that the regulator adopt a blanket fiduciary standard.

"The Commission should not allow certain firms to provide personalized investment advice to retail customers at a lower standard simply to accommodate those firms' business models," the letter said.

Financial Planning Coalition members all hold themselves to the stronger standard voluntarily through their group memberships and involuntarily as registered investment advisers who are subject to the 1940 act and policed by the SEC. The Certified Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors compose the coalition.

The group's comment is a clear reference to the brokerage industry's argument against a fiduciary standard, that it would prevent its advisers from providing certain kinds of products to clients who want them. "The Advisers Act … was not intended or designed to apply to incidental advice offered in connection with specific nondiscretionary, commission-based transactions that broker-dealers frequently provide," the Securities Industry and Financial Markets Association complained in a letter also filed Aug. 30.

What, for example, would happen to cash sweep services so customers can earn interest on their cash balances, online tools that don't offer specific investment advice, and what about lending or margin account features, it asks? And what happens if a client wants to invest more aggressively than is prudent? A fiduciary would be required to walk away.

The whole issue of commissions puts the Financial Planning Coalition in a spot. On one hand, a investor who just wants to make a one-off purchase of a product and has no desire for follow-up is often better off paying a commission rather than an ongoing fee. On the other, commission pricing on certain products can motivate an adviser to recommend a higher-paying product over another, something that's fine under Finra rules so long as the product is suitable to the client's time horizon and risk tolerance, but would not be an option a true fiduciary would offer.

The coalition's compromise is to provide an asset-based pricing model wherever it makes the most sense, but for fiduciary advisers to recommend clients pay a commission when that's the cheapest payment option. Where the adviser intends to have an ongoing relationship with the client, though, the "fiduciary standard must continue throughout the course of that relationship. When a broker-dealer only sells proprietary products, advisers should recommend comparable products on the open marketplace if they're cheaper," it says.

Generally speaking, though, the coalition remains adamant that "permitting a modified or watered down version of the 'fiduciary' standard to accommodate different business models would completely frustrate the interests of eliminating client confusion," and any concession to Wall Street's preference for more flexible regulatory standards is unlikely to play well on Main Street.

"The Coalition believes the Commission should not give Finra any new role in the oversight of investment advisers," it said.

Sifma doesn't want SEC oversight, but its letter implies that the group sees the writing on the wall when it asks the SEC at least to grandfather existing client relationships: "Requiring written consent from millions of existing retail customers would be unduly burdensome. … In a worst-case scenario, a broker-dealer or investment adviser would not be able to continue effecting transactions for a customer if the retail customer failed to return a [signed] disclosure document."

Ironically, both Sifma and the coalition argue for a "well-defined standard of care for broker-dealers and investment advisers." As ever, though, the two groups have very different ideas about how to get there.

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