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SEC Seeks Information on the Impact of a New Fiduciary Rule

The SEC has published a long-awaited 72-page request for information on the costs and benefits of a uniform fiduciary standard for securities brokers and investment advisers providing investment advice to retail clients.  

The information is the preliminary step to proposing a new fiduciary rule for brokers. In an unexpected move, the SEC also requested information and costs on “scenarios” in which differing rules governing brokers and investment advisors would be “harmonized” for investment advice to individual clients.  

Under the present regime, RIAs are subject to fiduciary standard of care under the Investment Advisers Act of 1940, while broker-dealers are held to a lower “suitability standard of care” under the Exchange Act of 1934.
  
Dodd-Frank required the SEC to study the effectiveness of the current standards of care for broker-dealers and RIAs when providing investment advice to retail clients. The statute authorized — but didn’t require — the SEC to develop new rules that would align the different standards for brokers and RIAs.

In 2011, the SEC staff study found that the lines between full-service broker-dealers and investment advisers had blurred, and recommended that a uniform fiduciary standard of conduct be adopted. The SEC staff study also made other recommendations that would begin to harmonize some of the other rules of the two regulatory regimes.

The SEC’s request for information signals that the SEC is seriously considering a uniform federal fiduciary standard for brokers and RIAs. If such a standard is implemented, brokers-dealers could expect heightened disclosure obligations and increased scrutiny of their investment recommendations to retail clients. Similarly, RIAs could see changes in their disclosure obligations, continuing education requirements and perhaps the introduction of a new self-regulatory organization like FINRA as the rules are harmonized. The 120-day comment period has begun.


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