The Securities Industry and Financial Markets Association wants the US Labor Department to hold back on putting out its expected proposed rule modifying its definition of fiduciary standard of care until the Securities and Exchange Commission decides whether it will put out its own standard for financial professionals. SIFMA is worried that new DOL rules might harm brokers that purchase and sell bonds and stocks in addition to offering investment advice.
The SEC and DOL are both working on fiduciary rules. While many agree that brokers such have fiduciary duties to their clients, there are those who worry that this could make commission-based professional relationships in which a financial representative offers products from his/her employer more challenging. SIFMA says it would like a business model that includes a uniform fiduciary standard that doesn’t prevent a client from buying such products if desired.
The Labor Department, which is accountable for enforcing Employee Retirement Income Security Act rules over qualified plans, is expected to propose a stronger standard than the SEC. Already, ERISA places high care standards and loyalty on the fiduciaries of IRAs and pension plan and the DOL makes it a priority to protect customers from the conflicts of interest of advisors.
While the DOL and SEC are working jointly to make sure regulatory efforts are in harmony, some are worried SIFMA members would have to meet the same standards as certified financial planners and RIAs. Although Congress definitely distinguished between broker-dealers, regulated as sales folk (see the Securities Exchange Act of 1934) and investment advisers, (see the Investment Advisers Act of 1940), the roles have converged since then, with a lot of brokerage firms now providing advisory services not unlike what investment advisers offer. Still, IAs and broker-dealers continue to be subject to different legal standards when it comes to providing advisory services.
The DOL, which proposed a rule revising ERISA’s fiduciary standard definition but later withdrew it, is expected to repropose one again this year. Meantime, the SEC is deciding whether to purpose its own rule about establishing a unified fiduciary standard for brokerage firms and investment advisers that offer personalized investment advice to retail customers.
Sifma Fears New DOL Rules Could Hurt Brokers, FA-Mag, January 20, 2014
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