Two men share securities regulation news

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Securities Regulation Daily, November 22, 2013

SEC Investor Advisory Committee recommends adviser user fee legislation and fiduciary duty for brokers

By Jim Hamilton, J.D., LL.M.

The SEC Investor Advisory Committee today recommended federal legislation to fund investment adviser examinations and also advanced a recommendation that personalized investment advice to retail customers should be governed by a fiduciary duty, regardless of whether that advice is provided by an investment adviser or a broker-dealer.

The Commission’s registered investment adviser examination program faces significant capacity challenges in both the near-term and long-term. These challenges stem in part from the additional oversight the Commission must now conduct as a result of the Dodd-Frank Act, including the registration of advisers to certain private funds. Specifically, the Committee urged the SEC to request legislation from Congress that would authorize its Office of Inspection, Examination, and Enforcement (OCIE) to impose user fees on SEC-registered investment advisers, the revenue from which could be retained by the Commission to fund an enhanced investment adviser examination program including more frequent on-site examinations of SEC-registered advisers.

Adviser examinations. A template for the legislation could be the user-fee legislation that has been introduced in the 113th Congress by Rep. Maxine Waters (D-Cal), H.R. 1627, the Investment Adviser Examination Improvement Act of 2013, which enjoys support from many investment adviser industry associations.

Andrea Seidt, president of the North American Securities Administrators Association (NASAA) and Ohio Securities Commissioner, stated that the IAC legislative recommendation would create a viable, long-term solution to a problem that has plagued the SEC for decades. By authorizing the SEC to use revenue derived from the self-funding of examinations to augment OCIE’s exam program, noted the Commissioner, the legislation recommended would permit the SEC to establish and maintain a robust adviser examination program that periodically adjusts to correspond to changes in its examination responsibilities.

Broker fiduciary duty. The Investor Advisory Committee also recommended the extension of a fiduciary duty to broker-dealers when they provide personalized investment advice to retail investors. The Committee believes that personalized investment advice to retail customers should be governed by a fiduciary duty, regardless of whether that advice is provided by an investment adviser or a broker. The Committee further believes that the fiduciary duty for investment advice should include an enforceable, principles-based obligation to act in the best interest of the customer. In approaching this issue, the SEC should eliminate the regulatory gap that allows broker-dealers to offer investment advice without being subject to the same fiduciary duty as other investment advisers but not to eliminate the ability of broker-dealers to offer transaction-specific advice compensated through transaction-based payments.

State securities regulators strongly support the recommendations of the Investor Advisory Committee to extend a fiduciary duty to brokers when they provide personalized investment advice to retail investors. Establishing a uniform fiduciary duty standard governing the conduct of broker-dealers is crucial for investor protection, reasoned NASAA president Andrea Seidt, since most investors cannot distinguish broker-dealers from investment advisers, nor do they understand the different legal standards applicable to either. As a result, many investors are confused and unable to make informed decisions about which type of financial professional to retain.

Currently, investment advisers have a fiduciary duty mandated by the Investment Advisers Act, while brokers have a suitability duty to their customers. Section 913 of the Dodd-Frank Act required the SEC to study the effectiveness of existing regulatory standards of care for brokers and investment advisers when providing personalized investment advice about securities to retail customers. It also authorized, but did not require, the SEC to adopt rules providing for a uniform standard of care for all brokers and investment advisers. Based on the study, the SEC staff recommended the adoption of a uniform federal fiduciary standard for brokers and advisers that would be no less stringent than the standard currently applied to investment advisers under Investment Advisers Act Sections 206(1) and (2).

MainStory: TopStory FinancialIntermediaries BrokerDealers InvestmentAdvisers BrokerDealers DoddFrankAct

Securities Regulation Daily

Introducing Wolters Kluwer Securities Regulation Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.