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  • by Skip Schweiss
  • President, TD Ameritrade Trust Company
    Managing Director of Advisor Advocacy & Industry Affairs

Whither a Uniform Fiduciary Standard? (Or Which Way Bloweth Today’s Wind?)

Skip Schweiss

Skip Schweiss, Managing Director, Advisor Advocacy & Industry Affairs,
TD Ameritrade Institutional

“As Managing Director of Advisor Advocacy & Industry Affairs for TD Ameritrade Institutional, I help to expand the voice of registered investment advisors (“RIAs”) on important policy issues. As I publish my insights here on the regulatory and legislative issues that affect fiduciary advisors and their retail investor clients, you can be certain that I’m working alongside you every day to make sure that common sense, efficient regulation, and investor interests prevail.”

-Skip Schweiss (Follow Skip Schweiss on Twitter @TDASchweiss)


There’s an old sailor’s mantra that says, “Red sky at night, sailor’s delight. Red sky in morning, sailors take warning.” On the landscape of fiduciary standard, is it morning or night?

Late last year, it appeared the investment advisor industry was headed for some smooth sailing. On October 28, 2013, SEC Chairman Mary Jo White stated that developing a fiduciary duty for brokers remains a “major focus of our efforts.” She continued that while she couldn’t predict “when we reach [a rule proposal], it’s very important to work on and resolve where we are going on it.” (link: http://www.thinkadvisor.com/2013/10/28/sec-fiduciary-rule-major-focus)

On November 22, 2013, the Investor Advisory Committee led by Barbara Roper (link: http://www.sec.gov/spotlight/investor-advisory-committee-2012.shtml) released two recommendations: 1) The SEC should adopt a uniform fiduciary standard of care applied to brokers and advisers and is based upon the ’40 Act (link: http://www.sec.gov/spotlight/investor-advisory-committee-2012/fiduciary-duty-recommendation.pdf); and 2) the SEC should adopt “user fees” imposed upon investment advisory firms to fund more frequent examinations of those firms. (link: http://www.sec.gov/spotlight/legislation-to-fund-investment-adviser-examinations.pdf)

The day the committee released these recommendations, Chairman White responded, “I think this is a very important issue myself. … This committee’s recommendations are very important to us.” (link: http://www.investmentnews.com/article/20131122/FREE/131129954#)

But just as it looked like the industry would finally see a uniform fiduciary standard, the SEC indicated it had higher priorities. Lots of them.

On December 2, 2013, just 10 days after the committee’s recommendations were released, the agency released its regulatory agenda, listing 43 topics (link: http://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST&currentPub=true&agencyCode=&showStage=active&agencyCd=3235) it wanted to address before tackling the fiduciary standard — which now was listed on its “long-term actions” list. (link: http://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST&currentPubId=201310&showStage=longterm&agencyCd=3235&Image58.x=11&Image58.y=9&Image58=Submit).

In other words, it appeared this “very important issue” had been moved to the back burner.

Not so fast. On February 21 of this year, Chairman White stated, “We will intensify our consideration of the question of the role and duties of investment advisers and broker-dealers, with the goal of enhancing investor protection.”

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InvestmentNews reporter Mark Schoeff reported this apparent change of heart: (link: http://www.investmentnews.com/article/20140221/FREE/140229975)

“In a meeting with reporters after her remarks, Ms. White said that she wants the five SEC commissioners to come to a conclusion on whether to implement a uniform fiduciary standard for investment advice and to decide whether to harmonize regulations that govern investment advisers and brokers.”

It now appears that the SEC will decide this year “whether” to proceed with a rulemaking on fiduciary standard.

Not quite. On March 12, 2014, Think Advisor’s Melanie Waddell, another reporter who provides up-to-date information from Washington, reported (link: http://www.thinkadvisor.com/2014/03/12/secs-gallagher-fiduciary-rule-likely-not-coming) that Commissioner Daniel Gallagher said he believes the commission will not exercise its authority under Section 913 of Dodd-Frank to put brokers under a fiduciary mandate. “I’m not sure a majority of the commission believes we need to use” the authority under Dodd-Frank, he said.

Schoeff, reporting on the same meeting, quoted Gallagher as saying, “At this point, I’m not sure we need to use [the Dodd-Frank authority]. … I’m not sure, quite frankly, a majority of the commission believes that or believes we should use it in any way.”

Mr. Gallagher told reporters after the meeting that there had not been a discussion among the commissioners about the fiduciary standard since the SEC put out a request for information a year ago to help it draft a cost-benefit analysis.

“The chairman is pushing the staff very hard to get us something that will be a decision point,” Gallagher was quoted as saying. “I start from the position that it’s not necessary until someone proves it out.”

So with all this back-and-forth in recent months, what should we expect going forward? Delight or warning?

As we’ve reported before, the SEC has a very difficult challenge on its hands. Insurance companies have come out strongly against a fiduciary standard. Brokerage firms have come out in favor — just as long as it’s not the ’40 Act and its current business model continues: They can keep charging commissions, underwriting securities offerings, and making markets in securities.

The investment advisory industry has come out mostly in favor of a uniform fiduciary standard, though, more recently, advisors and their advocates have warned that if the SEC were to impose a “watered-down,” disclosure-based standard, the end result could be worse than the status quo for both investors and investment advisors.

As I continue to meet with lawmakers and regulators, I will weigh in on behalf of you and your clients as appropriate. And, as always, we’ll watch closely and continue to listen to your concerns. Please share your thoughts via this post or reach out to me–I’d love to hear what you think about this topic that is so important to our industry.

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