Date: July 30, 2010
You Have 30 Days to Stop the SEC from Imposing a Misguided Fiduciary Standard on Registered Representatives
All securities licensed NAIFA members must read this GovAlert.
The SEC has formally announced that it has begun a 30 day public comment period regarding its study examining the effectiveness of regulations governing broker-dealers and investment advisers. Following the study, the SEC has the discretion to impose a legal fiduciary standard on broker-dealers and their registered representatives unless the public comments convince them otherwise. The premise behind the effort is based on the perception that the legal fiduciary duty governing investment advisers provides greater investor protection than the suitability standard governing broker-dealers.
We disagree that the fiduciary standard has protected consumers better. Basically, the fiduciary standard looks back and enforces breaches retroactively through SEC enforcement or private lawsuits. The suitability standard looks forward and tries to prevent harm to consumers through ongoing and frequent FINRA and broker-dealer audits and compliance processes.
Contact the SEC and tell them you are regulated enough! Failure to do so could result in a new liability-ridden fiduciary duty for registered representatives. If not done right the resulting regulation WILL have a very profound impact on how you serve your clients or even whether you will continue to do so.
Can You Make a Difference?
What You Should Do:
When writing your comments, try to touch upon some of the following topics:
The suitability standard governing broker-dealers and registered representatives is a robust and heavily enforced standard. Compare and contrast it to how you see the fiduciary standard governing investment advisers is applied and enforced.
Background: As has been widely reported by NAIFA and the media, we played a leading role in working with Senators Tim Johnson (D-SD) and Mike Crapo (R-ID) to include the SEC study in the recently-passed Dodd-Frank Wall Street Reform and Consumer Protection Act. The purpose of the study is for the SEC to conduct the first ever comprehensive analysis of the regulatory environment governing broker-dealers and investment advisers and to determine if any regulatory gaps or overlaps exist that are harmful to consumers. Without the study, Congress was set to move forward with imposing a legal fiduciary duty on all broker-dealers and their registered representatives who provide advice to clients. The premise behind the effort is based on the perception that the fiduciary duty governing investment advisers provides greater investor protection than the suitability standard governing broker-dealers.
What This Means:
What the Fiduciary Standard Could Mean for NAIFA Members:
While NAIFA members believe they are already acting in the "best interest" of their clients, the Act does not define what the rules are for compliance with a legal "best interest" standard - thus subjecting registered representatives to the potential of never ending lawsuits. For example, is "best" the cheapest recommended product? The "best" premium relative to the benefit of the product? The product with the "best" historic underwriting and service standards? Is it the one from the carrier with the "best" rating? The fiduciary standard in essence adds a vague legal liability standard that looks back (sometimes after many years) and is enforced after the fact by the SEC or trial lawyers who have perfect vision in hindsight.
Fortunately, due solely to NAIFA's vigorous efforts, the duty as defined by the Act does include some key limitations that prohibit a regulator from holding a registered representative in violation of the "best interest" standard simply because they receive a commission or recommend to the client to purchase a proprietary product.
Your have a chance to convince the SEC to not exercise their authority to impose a misguided fiduciary standard on you. Click here to contact the SEC today!
National Association of Insurance and Financial Advisors