Financial industry observers are increasingly skeptical that the U.S. Securities and Exchange Commission's planned proposal to require a uniform fiduciary standard for all financial advisers will become a reality this year, if ever.
The SEC said it would propose the rule, which would hold both fee-based financial advisers and commission-based brokers to the same fiduciary standard, during the second half of 2011. But that didn't happen and earlier this month the agency said it was drafting a request to ask the public for more data in order to do a cost-benefit analysis of the proposal.
Industry heavyweights and advisers who attended The John C. Bogle Legacy Forum on Tuesday at the Museum of American Finance said that even if the agency manages to finish its analysis and come up with a proposal in the next few months, they do not expect an actual rule to come about this year. Some observers now believe the rule might never come to fruition.
I don't think you will see a rule before the presidential elections, said Harvey Pitt, chief executive of global business consulting firm Kalorama Partners LLC and a former SEC chairman, in an interview with Reuters at the forum.
If President Barack Obama wins a second term and Republicans keep control the House of Representatives, partisan fighting could further delay a final rule, Pitt said.
The proposal's genesis stems from the Dodd-Frank financial reform law, which required the SEC to study whether there should be a uniform fiduciary standard for advisers and brokers. The study, which was released almost a year ago, recommended a uniform standard.
Currently financial advisers are held to a fiduciary standard, which means their recommendations must be in the best interest in their clients. Brokers are held to a suitability standard, meaning that any products they recommend must be suitable for their clients, though the products need not be in their best interest.
Some industry officials say they are glad to see the agency taking its time with the proposal given the complexities around it, including how to enforce it and how far-reaching it should be.
This is a really difficult issue that the SEC has to address, said T. Timothy Ryan Jr., chairman of the Securities Industry and Financial Markets Association, in a panel discussion at the forum.
SIFMA favors a uniform fiduciary standard but wants it to be nuanced in order to address the different business models used in the financial advice industry. We need to recognize that business is done differently for a small independent financial advisory shop, compared to one of these large firms (with) a very different business model.
Ryan and others say they hope that the latest delay could be good for another reason. It could prompt the SEC to work closely with the Department of Labor, which is working on its own standard of fiduciary care for advisers serving retirement plans. We have multiple fiduciary standards floating around, Ryan said.
An SEC spokesman said the proposal remains a priority for the staff but that the agency has not determined when it will be finalized.
A number of attendees at the forum told Reuters that they would be surprised if a final rule ever gets enacted. Companies have a multitude of perspectives on the proposal and there is almost no consensus among them.
The structure of so many firms require them to push certain products, said Guy G. Rutherfurd Jr., a partner and portfolio manager with F&V Capital Management LLC, a registered investment adviser attending the forum. These firms do not want to see a uniform standard, he said.
Wall Street companies do not want to change their way of doing business and will continue to fight any rule that forces them to do so, said Michael Zeuner, senior executive partner at GenSpring Family Offices. Last summer Zeuner helped found The Institute for the Fiduciary Standard, an group designed to raise awareness around the need for a uniform fiduciary standard. But he's not hopeful a rule will ever be presented.
I don't think Washington is going to do what is necessary, Zeuner said. Too much of the conversation is around what's right for the industry, and not what's right for investors.
(Reporting By Jessica Toonkel; Editing by Jennifer Merritt)