By Linda Koco
New York City Comptroller Scott M. Stringer is calling for a state law that would require financial advisors to disclose in plain language whether they abide by the fiduciary standard.
The reasoning behind this is that prospective clients would know of potential conflicts of interest and to what party their advisors hold their ultimate allegiance, Stringer said.
The city official acknowledged ongoing federal discussion in this area, but declared that New York “can’t wait to give New Yorkers the common-sense reforms they need to make informed investment choices.”
The as-yet-untitled measure would be state legislation, not regulation.
It would require all advisors operating under the suitability standard to state at the outset of any financial relationship that: “I am not a fiduciary. Therefore, I am not required to act in your best interests, and am allowed to recommend investments that may earn higher fees for me or my firm, even if those investments may not have the best combination of fees, risks and expected returns for you.”
The advisors Skinner referenced would include but not be limited to broker/dealers, traders and financial planners. Non-fiduciaries would have to confirm the disclosure statement “both aloud and in writing.”
In the accompanying report, the comptroller’s office acknowledges that the Department of Labor is currently working on a proposal to amend the definition of “fiduciary” under the Employee Retirement Income Security Act (ERISA), expanding the categories of financial professionals subject to a fiduciary standard.
In addition, the report states that there is “some evidence” that the Securities and Exchange Commission (SEC) is considering action on expanding the fiduciary standard. SEC Chairman Mary Jo White has indicated “her personal support for reform” in her statements about the SEC having an “obligation” to issue a rule on the fiduciary standard, it says.
However, the DOL rule is currently being reviewed by the Office of Management and Budget, the report says. In addition, the SEC “has yet to reach a decision on the establishment of a universal fiduciary standard” even though the Dodd–Frank Wall Street Reform and Consumer Protection Act authorized the SEC to propose such a rule change in 2010.
There is no substitute for federal regulatory reform, the report continues. However, “we cannot wait for Washington to act — not while millions of New Yorkers remain unaware about the standards governing the retirement and savings advice they receive.”
It may be that Stringer is just floating the idea to test for reaction — or to goad federal policymakers to take definitive action in favor of expanded fiduciary scope.
However, the news that a city official is making such a proposal at all may cause some frowns among those who have been engaged in the fiduciary debate at the federal level for many years. “A city official?” they may ask.
One statement in the comptroller’s report provides a clue to the rationale, beyond the blanket statements about protecting the public from conflicts of interest.
This has to do with the city’s powerful position in the financial services industry. By making the update, the report says, “we will promote the transparency and accountability that has made New York City the Financial Capital of the World.”
Neither the Stringer press release nor the report indicates when the proposed legislation will be introduced to the New York legislature or by whom.
When and if that day comes, the proposal surely will meet with stiff opposition from some of the same forces that have been resisting expansion of the fiduciary standard at the federal level.
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at firstname.lastname@example.org.
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