SIFMA Submits Recommendations to SEC for Developing IA and BD Conduct Standard
Interest Contract Exemption and Principal Transactions Exemption that are not now in effect.
Interest Contract Exemption and Principal Transactions Exemption that are not now in effect.
SIFMA submitted recommendations to the SEC in response to a request for comments on investment adviser and broker-dealer standards of conduct regarding retail customers.
SIFMA argued that the fiduciary rule and related exemptions of the Department of Labor ("DOL") (see previous coverage) impose overly burdensome compliance requirements and costs on broker-dealers who provide advice, and that the rule and exemptions "have contributed and will continue to contribute to greater cost, less choice and less professional services for retirement savers."
SIFMA's recommendations focused primarily on the development of enhanced standards of conduct for broker-dealers concerning retail customers. These standards would include a duty of loyalty, a duty of care and enhanced upfront disclosures. SIFMA recommended that the SEC build on the existing FINRA regulatory framework, and noted that this approach would lead to a more uniform standard that applied to all retail accounts and not just IRA accounts (as is the case with the DOL rule).
SIFMA also encouraged the SEC to coordinate and work with the DOL to ensure that conduct standards are "harmonized across all regulatory regimes," and to avoid implementing "overly prescriptive exemptions" that impose heavy burdens on market participants. SIFMA asked the SEC for support in requesting that the DOL extend the January 1, 2018 full compliance date (for exemptions including the Best Interest Contract Exemption and Principal Transactions Exemption) until at least 24 months after the DOL publishes the final rules.
Commentary
SIFMA notes that Dodd-Frank Section 913 requires the SEC to adopt a uniform standard that would apply to broker-dealers and investment advisers that would be "no less stringent than" the fiduciary duty under Section 206 of the Advisers Act. Nevertheless, SIFMA's comments are focused on how the SEC should address broker-dealers without addressing any changes to investment adviser regulation. This is because, as SIFMA observes, it "seems unlikely" that the SEC will proceed to rulemaking under Section 913, given the "inherent differences between [broker-dealers] and [investment advisers]." That is a fair point. While there is some overlap in the types of services offered by broker-dealers, investment advisers, financial planners, and other persons who offer financial advice to retail customers, given the previous 10-year boondoggle the SEC faced when trying to address the issue of "advice" provided by broker-dealers (see a summary of that rulemaking and litigation in the Customers Chapter of Lofchie's Guide to Broker-Dealer Regulation at "Advice and Discretion"), it is understandable that the SEC would be hesitant to pick up that problem once more without more explicit statutory direction from Congress.
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