NASAA: Investor and Adviser Groups Voice Opposition to Weakened Fiduciary Standard (with Lofchie Comment)

A broad-based coalition of organizations submitted a letter to SEC Chairman White, urging the SEC to establish a uniform fiduciary standard for broker-dealers and investment advisers that is at least as strong as the existing standard for investment advisers and asserted vigorous opposition to any rule that would weaken investor protections. The letter outlines the group's concerns that the SEC's March Request for Information ("RFI") signals that the SEC may be backing away from requiring a fiduciary standard for broker-dealers that is "no less stringent" than the one under which registered investment advisers currently operate.

Lofchie Comment: When the SEC issued its questionnaire on fiduciary duties, I commented that the questionnaire was extremely well done and evidenced that the SEC was interested in considering the costs and benefits of any rulemaking, rather than simply taking the potentially politically expedient approach of declaring that all broker-dealer advice was delivered under a fiduciary obligation. See: SEC Survey on Obligations of Broker-Dealers and Investment Advisers to Retail Customers (with Lofchie Comment).The attached letter to Chairman White presumes that the government can impose regulatory burdens in a manner that will hit broker-dealers, but not affect customers or the prices that they pay. Thus, the letter says: "We believe that such an approach, if properly implemented, could both enhance investor protections and preserve key beneficial elements of the transaction-based broker-dealer business model." In other words, the letter presumes that the SEC can adopt a rule that will create greater costs for broker-dealers, but will not require them to pass those costs on to their customers. This is unrealistic. The incoming letter would be more persuasive if it argued for a higher standard of care imposed on broker-dealers, but also acknowledged that the imposition of this higher standard of care would result in diminution of the level of personal services available to customers who don't generate enough brokerage commissions to make it financially worthwhile for broker-dealers to obtain and maintain personal information about their customers that would allow them to fulfill this expanded obligation. That is a defensible trade-off from a policy perspective, and one can support such a trade-off or not. Instead, the letter chooses to pretend that the new regulatory burdens will be, "if properly implemented," cost-free. As a country, we cannot make good policy choices if we refuse to concede that regulations impose costs, and that some regulations are worth those costs and some are not.

See: Letter.See also: Press Release.