The largest trade organization in the securities industry
has advised the Securities and Exchange Commission that implementation of a
uniform fiduciary standard would impose substantial costs on brokerage firms
needing to revamp their compliance procedures.
Since Congress directed the SEC to overhaul the securities
laws in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
the agency has sought to establish uniform standards of care that will govern
brokers who are registered with the Financial Industry Regulatory Authority
(FINRA) as well as investment advisors who are regulated by the SEC. Under current law, brokers are required only
to recommend investments that are “suitable,” meaning that they must only have
a reasonable basis to recommend a security in light of their clients’
investment objectives and financial circumstances. By contrast, investment advisors must adhere
to a more stringent fiduciary standard of care, which imposes a duty of loyalty
and requires them to act in the best interests of their clients.
According to the industry trade group, the Securities Industry and Financial Markets
Association (SIFMA), extending the fiduciary duty standard to registered representatives will obligate brokerage firms to expend
millions of dollars to create and maintain new compliance procedures. According to SIFMA, the cost of developing
the procedures, training staff and creating new broker disclosures would cost
an average of $8 million for each brokerage firm during the first year
alone.
SIFMA's cost estimate is likely to deepen the divide between proponents
and opponents of the uniform fiduciary duty standard. Recently, the National Association of
Insurance and Financial Advisors, which opposes the SEC’s efforts to create a
uniform standard, submitted a letter to the SEC contending that the rule would
harm middle-income investors because the increased compliance costs would cause
them to no longer service investors with modest assets. In
contrast, the Massachusetts Secretary of the Commonwealth submitted a letter to
the SEC claiming that average investors have collectively lost substantial sums
of money at the hands of brokers who do not have to act in the best interests
of their clients.
Block & Landsman is a law firm focused on litigating securities law disputes. If you believe your advisor has improperly caused investment losses, call the attorneys at Block & Landsman for a free consultation.
