A subcommittee of the SEC’s Investor Advisory Committee has submitted a draft “Recommendation of the Investor as Purchaser Subcommittee Broker-Dealer Fiduciary Duty” in advance of a scheduled Oct. 10, 2013 meeting of the Committee. The draft document from the Committee’s “Investor as Purchaser” subcommittee contains two recommendations:
• The SEC should issue rules imposing fiduciary duty on broker-dealers when providing “personalized investment advice to retail investors.”
• The SEC should create a plain-English, uniform disclosure document to be provided by broker-dealers and investment providers to customers and potential customers “that covers basic information about the nature of services offered, fees and compensation, conflicts of interest, and disciplinary record.”
In discussing its first recommendation, the subcommittee acknowledges that the Dodd-Frank Act permits broker dealers to continue to receive commissions and not have an on-going duty to monitor the recommended investment options. However, investment advisors cannot receive commissions and have an ongoing duty to monitor the recommended investment options.
As pointed out in NAPA’s July 5, 2013, comment letter to the SEC, labeling broker dealers and investment advisors as “fiduciaries” would create a “non-uniform uniform” fiduciary standard. As a result, there would be two kinds of fiduciaries: “traditional” fiduciaries (investment advisors) who cannot receive commissions and have a duty to monitor their client's investments, and “new” fiduciaries (broker dealers) who are free to continue to accept commissions and are still not required to monitor investments. This non-uniform standard would cause more confusion for investors.
NAPA supports disclosure of fees, services to be offered, etc., by broker dealers and investment advisors prior to being engaged by retail investors. In fact, the comment letter recommended that the SEC should require broker dealers and investment advisors to provide prospective retail customers with a short, single-page disclosure with an attached glossary of terms.
According to the SEC’s website, “Section 911 of the Dodd-Frank Act established the new Investor Advisory Committee to advise the Commission on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The Dodd-Frank Act authorizes the committee to submit findings and recommendations for review and consideration by the Commission.”
Ronald J. Triche, Esq., APM is Assistant General Counsel and Director of Government Affairs of ASPPA.