FINRA Head: SEC Should Lead in Development of Fiduciary Standard

Recently, the head of the Financial Industry Regulatory Authority (FINRA) told a congressional panel that the Securities and Exchange Commission (SEC) should take the lead in the development of a uniform fiduciary duty for broker-dealers and investment advisors. Currently, both the SEC and the Department Labor (DOL) are, independently, developing a uniform standard for stockbrokers and investment advisors.

Uniform Fiduciary Duty

Before the House of Representatives Financial Services subcommittee, Richard Ketchum, FINRA’s chairman and chief executive, stated that he supports the development of a standard that securities professionals act in the client’s best interest, regardless of whether they are a broker or investment advisor. Further, Ketchum stated that he believes that the SEC should be in charge of the development of this standard, while promising FINRA would provide assistance in this endeavor.

In March, SEC Chair Mary Jo White requested that SEC staff members develop a recommendation for a uniform fiduciary duty applicable to both brokers and investment advisors. However, she made it clear that her initiative was not being driven by the efforts of the DOL. The DOL recently indicated it was bringing back plans to hold investment professionals to a fiduciary standard when recommending certain retirement investments.

As a result of these independent efforts, it is possible that different standards may arise under the SEC and DOL. This potential outcome was recognized by Ketchum, who stated that the possibility of varying standards caused him “regret.” However, Ketchum believes that the SEC is better positioned to lead the development of a uniform standard due to its decades of experience related to these matters. This belief is in despite of the fact that the DOL is further along in the process of developing a fiduciary standard than the SEC.

Wall Street resists a uniform fiduciary standard claiming the change in standards may result in limiting investor choice and forcing retail investors into more costly fee-based, as opposed to commission-based, arrangements. This is part of a larger debate within the investment community, involving whether regulators should adopt an expansion of who is held to a fiduciary standard and what impact it may have on commission-based compensation models and the availability of certain investment products to retail investors.  However, most investor advocates highlight Wall Street’s opposition to a fiduciary standard is because Wall Street will currently profit from multiple revenue streams and any requirement to act in the investor’s best interest will require additional disclosures and loss of profits to Wall Street.

Ketchum also mentioned that FINRA is considering implementing a Comprehensive Automated Risk Data System (CARDS) in order to detect early signs of sales practice abuse and fraud. For the time being, CARDS is on hold amid privacy concerns. However, Ketchum also stated that any implementation of the program would take a “considerable amount of time.”

Protecting Investors

Unfortunately, in some circumstances, brokers and investment advisors commit misconduct that negatively impacts investors. If you would like more information about the protection afforded to investors, speak with an experienced securities law attorney today. The attorneys at the Silver Law Group have the expertise and knowledge to help you explore your legal remedies for investment losses as a result of possible broker or advisor misconduct.