March 23, 2015 Washington Wire

SIFMA Chief: Fiduciary Standard Could Be Detrimental To Investors

WASHINGTON – A new legal white paper said the proposed fiduciary standard for the sale of investment products “has the potential to cause a detrimental impact on all American savers, especially middle class investors, and the retirement system as a whole."

That’s according to Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association (SIFMA), which commissioned the white paper prepared by lawyers at Morgan Lewis and Bockius.

Bentsen said the report “underscores that no thoughtful analysis can begin to frame the issues surrounding how Americans save and invest for retirement — or provide a sound foundation for policy judgments — without taking stock of the investor protections and key aspects of the robust regulatory framework currently in place.”

The white paper classifies as “errant” the justification for imposing a fiduciary standard on sale of investment products produced by the Council of Economic Advisers (CEA).

The report argues that the current oversight framework for sale of investment products, including the activities of the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), constitutes a “comprehensive regime that reserves choice, scales protection, addresses conflicts, thoroughly regulates broker/dealers and “appropriately focuses on individual retirement accounts (IRAs).”

It describes the CEA report as outlining “perceived inadequacies” in the current standard governing sale of investment products into investment accounts overseen by the Department of Labor under the Employment Retirement Income Security Act of 1974 (ERISA).

The new document contends that the CEA report “fails to address” and “doesn’t appreciate key aspects of the comprehensive and multilayered regulatory framework that has developed in the U.S. over the past 100-plus years and that protects all investors, including IRA investors, from conflicts of interest.”

The paper said that financial regulators recognize the “increasing importance” of IRAs as sources of retirement income and those regulators have a “deep history and understandings of both the U.S. capital markets and investor protections.” As a result, “they are continuously adapting their approaches under the existing regulatory framework to address changes in the retirement savings landscape, and to further protect IRA investors,” the new document says.

The CEA analysis “over-simplifies” broker/dealer regulation, according to the white paper, adding that it “fails to appreciate the comprehensive regulation of broker/dealers established in reticulated form via SEC and FINRA requirements, which both protects investors and is calibrated to reflect that broker/dealers and investment advisers play different roles.”

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].