SIFMA unveiled a best interest standard June 3 — and not to be outdone, the Financial Services Roundtable also called for a uniform client “best interest standard,” while releasing an alternative proposal to the DOL’s proposed fiduciary rule.
SIFMA’s Standard
SIFMA, which unveiled its standard at the organization’s DOL Fiduciary Seminar, said that a best interest standard for broker-dealers should:
• apply across all investment recommendations made to individual retail customers in all brokerage accounts (not just limited to IRA accounts);
• serve as a benchmark for, be consistent with, and integrate seamlessly into, the SEC uniform fiduciary standard that ultimately emerges under Dodd-Frank, Section 913;
• provide interim, strong, substantive, “best interests” protections for retail customers; and
• follow the traditional securities regulatory approach of establishing a rules-based, heightened standard, including robust disclosure, coupled with robust examination, oversight and enforcement by the SEC, FINRA and state securities regulators, as well as a private right of action for investors.
SIFMA said that the new standard could be articulated through amendments to existing FINRA rules, as approved by the SEC, and would:
• articulate a legal and enforceable best interests obligation;
• consider investment-related fees as part of the best interests standard;
• avoid and/or manage material conflicts of interest; and
• provide disclosures about material conflicts and investment-related fees to enhance transparency.
FSR’s ‘Fix’
The Financial Services Roundtable’s alternative crafts a new prohibited transaction exemption (PTE) that it says is based on the investment advice exemption already allowed under the Pension Protection Act of 2006 (PPA). The organization notes that a rule based on this exemption would still require that financial professionals and firms act in the best interest of each customer and provide appropriate disclosures “without such significant disruption to customers.”
FSR’s “Five Ways to Fix DOL’s Fiduciary Proposal” said that the FSR alternative would recognize that the fees and expenses of various investment products and services vary based on the type of product or service, and thus commissions or fees would be uniform among the same class of investment alternatives.
FSR said that it supports efforts by the SEC, FINRA and others to codify a best interest standard — a standard that it said FINRA already enforces against registered securities broker-dealers.
So, let’s get ready to ruuuuummmmble!
