By Cyril Tuohy
With the comment period for the Securities and Exchange Commission (SEC) to request information on uniform fiduciary standards now over, the “closing arguments” on behalf of financial advisor lobbies shows just how much is at stake for intermediaries on either side of the fiduciary standards divide.
In a letter to the SEC on July 5, the end of the SEC’s request-for-information period regarding the implementation of uniform fiduciary standards, the Financial Planning Coalition reiterated its intention to “vigorously oppose” attempts to weaken or lower standards of advice for investors.
The coalition, representing the Certified Financial Planner Board of Standards (CFP Board), the National Association of Personal Financial Advisors (NAPFA), and the Financial Planning Association, a leadership and advocacy group, argued its case in a 25-page letter that concluded “a uniform fiduciary standard should apply to all investment advice provided to retail customers, whether that advice is delivered by an investment advisor or a broker-dealer.”
The letter was followed by a lengthy slideshow presentation arguing that a fiduciary standard of care neither limits financial advice nor raises costs in such a way as to alienate the mass-market investor, the arguments often put forward by those who don't want to see a rigorous fiduciary standard applied.
The Financial Planning Coalition's document landed in the SEC inbox only days after the release of a survey by the National Association of Insurance and Financial Advisors (NAIFA) and The American College of Financial Services, which said that many advisors would raise prices and limit choices to investors if advisors found it more expensive to do business. Imposing a uniform standard of fiduciary care would mean more licensing and therefore, they argue, raise the cost of doing business for financial advisors and broker-dealers, many of whom currently only have to meet the lower threshold of a "suitability standard."
NAIFA chief executive officer Susan Waters said in a June 28 statement accompanying the survey results that her members “protect the financial interests of American families throughout the country.” Whether that means investors are best served by advisors meeting a fiduciary duty, or whether investors are better off with advice that is good enough, is now up to the SEC to decide.
The SEC is reviewing standards of care that financial advisors are required to meet as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in the wake of the 2008 financial collapse.
The Great Recession extinguished trillions of dollars in stock market value and inquiries later found that many investors had been sold products that were, at the least, inappropriate for the risk level many of them were willing to bear.
Editor's note: Read a response from NAFA, the National Association for Fixed Annuities, here.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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