S.E.C. Chief Voices Support for Higher Advice Standard for Brokers; Such a move would hold stockbrokers to a fiduciary duty standard, under which they must put their clients’ interests ahead of their own


S.E.C. Chief Voices Support for Higher Advice Standard for Brokers

By MICHAEL J. de la MERCEDMARCH 17, 2015

PHOENIX — The chairwoman of the Securities and Exchange Commission announced on Tuesday that she planned to explore setting a higher standard for brokers in dispensing investment advice, putting the agency in the middle of a potential fight between the Obama administration and the financial industry.Speaking at a conference hosted by the Securities Industry and Financial Markets Association, one of Wall Street’s main trade groups, the chairwoman, Mary Jo White, expressed her personal support for setting up a so-called uniform standard of fiduciary duty.

Such a move would hold stockbrokers to a fiduciary duty standard, under which they must put their clients’ interests ahead of their own. Registered investment advisers already fall under that higher bar, while brokers follow a looser “suitability” standard that requires them only to mind customers’ needs and appetite for financial risk.

“I believe the S.E.C. has an obligation” to create a uniform standard, Ms. White told the association’s conference.

Ms. White’s comments were her first public thoughts on the matter, coming months after the chairwoman promised to outline her position on the issue.

The S.E.C. has the authority — but no obligation — to create the new standard, thanks to a provision in the Dodd-Frank financial regulationoverhaul. The Obama administration backed a similar initiative by the Labor Department to create a higher standard for brokers who oversee retirement investments.

A new standard from the commission would carry more weight, however, since it would encompass all brokers and not just those who oversee retirement accounts.

Behind the call for a tougher standard is concern that loose rules have potentially cost consumers billions of dollars each year. A memo from the White House that surfaced in January estimated that investors lost between $8 billion and $17 billion from their I.R.A.s last year because of a lack of protections.

Critics of the current system argue that it potentially allows brokers room to recommend, say, a mutual fund that pays them more than other investment options available to a particular customer. Sifma, as the Wall Street trade group is known, has disputed the White House estimates.

Ms. White said that her staff had consulted with the Labor Department, though it is unclear how much the S.E.C.’s approach will mirror its counterpart’s proposal.

But the commission itself may be divided on the issue along party lines. While Ms. White and the regulator’s two other Democratic commissioners have now expressed support for such a move, the agency’s two Republican commissioners have indicated before that they see little need.

Still, a 3-2 vote in favor of a uniform standard would be enough to carry the day.

Critics of a tougher standard said that imposing the higher requirement could raise costs for brokers, potentially prompting some to drop smaller customers, depriving them of high-quality investment advice.

Sifma officials expressed guarded support for Ms. White’s proposal.

“This is something we’ve been advocating for six years,” Ira D. Hammerman, Sifma’s general counsel, said in an interview. But he added that the S.E.C. should be careful not to upset brokers’ existing business models too much.

“Any move should preserve customer choice,” Mr. Hammerman said, “and not be some Big Brother government mandate.”

Ms. White offered no details in her presentation, acknowledging that the commission’s work included defining a standard and its requirements, as well as devising ways to enforce the new measure.

“You have to think long and hard before you regulate things differently,” she said.


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