The Securities and Exchange Commission (SEC) recently announced that it had received very little response to its request for information on the potential financial impact of a universal fiduciary standard for financial services. Advocates for such a fiduciary standard have expressed some concern that the SEC may try to use lack of such data to defeat the issue.
While one would hope that the SEC honors its purpose and mission statement, to protect the public, such concern is understandable given their attempt to ignore the law regarding the registration rules for investment advisors and investment advice. The SEC chose to try to protect the brokerage industry by creating a so-called “Merrill Lynch Rule” that would have exempted brokerage firms from the registration rules for investment advisors as long as such investment advice was “incidental.”
The real issue with the “Merrill Lynch Rule” was that it would have allowed stock brokers to operate under the lenient “suitability” rule, which allows stock brokers to put their own financial interests ahead of their customers’ best interests. Investment advisors must comply with a fiduciary standard, which requires that they must always put a customer’s financial interests first. Fortunately, the Financial Planning Association successfully sued the SEC and the court revoked the “Merrill Lynch Rule.”
Once again there is concern that the SEC may once again try to shirk its stated purpose and mission statement by claiming lack of sufficient cost data to go forward. In effect, the SEC would be saying that since those opposing a much needed and enhanced standard to protect the public will not provide us with evidence of any increased financial burden, we will not go forward and protect the public, a totally perverse position.
In legal actions, if one of the parties refuses to produce information requested by the other party, the court properly sanctions the non-producing party, even to the extent of deciding the action in favor of the requesting party. The SEC, should it rely on such non-production of data to prevent adoption of a universal fiduciary standard, would be rewarding the parties whose continued abusive practices against investors have made such a standard necessary.
Furthermore, the SEC needs to realize that the scarcity of data is due to the fact that the data does not support the financial services industry’s allegations of the financial hardship that a universal fiduciary standard would create. As recently as 2012, FINRA, one of the regulatory bodies with oversight of the financial services industry, and various enforcement actions have clearly stated that “a broker’s recommendations must be consistent with his customers’ best interests.”
Consequently, brokerage firms and stock brokers should already be complying with the fiduciary standard’s “best interest” requirement. Therefore, a universal fiduciary standard would not create any additional compliance costs unless a brokerage firm is admitting that it has not been complying with FINRA announced “best interests” standard.
Regardless of which case it may be, hopefully the SEC will recognize this ongoing ruse for what it is, a bogus self-serving position to allow the continued abuse of investors, and will act in furtherance of both its stated purpose and mission statement and adopt a much needed universal fiduciary standard to protect the public from the abusive practices of Wall Street.
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