SEC Commissioner Piwowar Discusses Uniform Fiduciary Duty Debate (with Lofchie Comment)
At the National Association of Plan Advisors, SEC Commissioner Michael Piwowar delivered remarks in which he discussed the debate over the appropriate standard of care for those who provide investment advice to retail investors.
According to Commissioner Piwowar, the SEC issued a study that found investors to be confused about the titles, duties and fees of broker-dealers and investment advisers. The study recommends that regulators impose a "uniform fiduciary duty" so that a client being given investment advice would receive the same standard of care whether the advice came from a broker-dealer or an investment adviser.
Before the SEC adopts any new rules or amendments, Commissioner Piwowar cautioned, it must explore the marginal benefits and costs. Commissioner Piwowar said that he doubts retail investors are being harmed or disadvantaged systemically under one regulatory regime as opposed to the other; therefore a uniform fiduciary standard of care may not result in a client's receiving different investment advice than they would today. Furthermore, it is not clear that a uniform fiduciary duty would ameliorate investor confusion, and restricting middle class families' and minority communities' access to professional financial advice could actually harm retail investors by making retirement advice unaffordable.
Commissioner Piwowar encouraged the SEC to consider alternatives to a uniform fiduciary standard of care beginning with an overhaul of the disclosure regime, which he said was "long overdue." In closing, he said that, while he is unsure whether or not he would support a uniform fiduciary duty, he is certain that the SEC should not simply act in response to the Department of Labor's re-proposal of its definition of "fiduciary."
Lofchie Comment: Commissioner Piwowar effectively rejected the seemingly sensible, but in fact mistaken, notion that the same customer obligations should be imposed on broker-dealers and investment advisers. Broker-dealers and investment advisers typically offer quite different services: broker-dealers provide execution of securities transactions and, on occasion, recommendations as to those transactions, while investment advisers provide portfolio advice that is ongoing and conditioned by a client's overall circumstances. One result of this difference is that the fees that broker-dealers charge for transaction execution can be quite low, since their obligations are more limited. If broker-dealers were subject to the same duties as investment advisers, they would have to raise their fees to the same levels. This would make it impractical for most middle-class families to hire brokers that would give them any transaction recommendations, since the fees would be prohibitive and in any case much higher than an investor would pay for the more limited service that a broker-dealer ordinarily provides. Commissioner Piwowar's practical view of financial regulation should triumph over the sound bite that brokers should be "fiduciaries."