This post was written by Terence Healy and Daniel Herbst.
On March 1, 2013, the Securities and Exchange Commission (“SEC”) published a sweeping request for comments that may determine whether a uniform fiduciary standard will be required for all broker-dealers and investment advisers providing services to retail customers.
Under the present regime, registered investment advisers (“RIAs”) are subject to fiduciary duties of care to their customers under the Investment Advisers Act, while broker-dealers are held to lower standards under the Exchange Act and the rules of any self-regulatory organization (“SRO”) in which they are registered. The Financial Industry Regulatory Authority (“FINRA”) requires brokers only to “know your customers” and make suitable recommendations.
Dodd-Frank required the SEC to study the effectiveness of the standards of care for broker-dealers and RIAs that provide investment advice to retail customers. The statute authorized, but did not require, the SEC to develop rules that would align the different standards for brokers and RIAs. An SEC internal staff study found the lines between full-service broker-dealers and investment advisers had blurred, and recommended that the two regulatory schemes be harmonized and a uniform fiduciary standard of conduct be adopted.
The SEC’s request for comments suggests a uniform federal fiduciary standard may be coming. If such a standard is implemented, brokers-dealers could expect heightened disclosure obligations and increased scrutiny of their investment recommendations to retail customers. RIAs could similarly see changes in their disclosure obligations as the rules are “harmonized.” Those who will be affected by a uniform fiduciary standard should weigh in now. The comment period closes in 120 days.