A U.S. securities industry lobbying group said on Friday it supports a proposal by the Obama administration to hold brokers to a higher standard for protecting clients' interests when giving investment advice.
The Securities Industry and Financial Markets Association (SIFMA) said it backs the proposal to provide clarity to consumers while expanding investor protection to a broader range of personalized investment advice.
SIFMA's stance marks a turning point in a long-running debate over the separate standards faced by brokers and investment advisers on looking after clients' interests.
Whether it results in aligning the broker standard with the standard observed by advisers is unclear at this point.
The Obama plan recommends that brokers who provide investment advice should have the same standard of care as investment advisers. We agree, David Tittsworth, executive director of the Investment Adviser Association, a lobbying group for advisers, told Reuters.
But we have questions whether the proposed legislation would actually accomplish that worthy goal, he said.
Surveys in recent years have shown much confusion among investors about the differences between brokers and advisers, and what obligation each has to their clients.
After nearly 70 years of confusion, with separate broker and adviser regulations, we have an opportunity to start anew, said John Taft, head of RBC US Wealth Management and chairman of SIFMA's Private Client Group.
The Obama plan for financial regulation reform proposes that the SEC should be given new tools to increase fairness for investors by establishing a fiduciary duty for broker-dealers offering investment advice and harmonizing the regulation of investment advisers and broker-dealers.
SEC WOULD HANDLE DETAILS
The Securities and Exchange Commission has tried in the past to resolve the dual broker and adviser standards. The SEC would be called on again to work out the details of the Obama plan, a task that could take many months to carry out.
The business of selling investment advice was once clearly delineated from the brokerage business. Advisers got flat fees from clients; brokers got sales-based commissions. Each field followed its own standards on client care.
The distinction blurred, however, as Wall Street started selling fee-based brokerage accounts. Brokers who tend these accounts are often promoted as investment advisers.
Independent investment advisers, unaffiliated with brokerages, have said for years now that brokers are really just salesmen and shouldn't be allowed to portray themselves as putting investors' interests foremost.
At present, brokers have to follow investment suitability rules of their own governing their duty to clients. But independent advisers have argued that the rules they have to follow are stricter and better protect clients.
The administration wants to align the standards. That alignment could occur at or near the level to which advisers are now held. But Tittsworth said that SIFMA wants a completely new federal standard.
SIFMA presented its position on the Obama proposal at a U.S. House of Representatives Financial Services Committee hearing. The group's support for the proposal would limit application of the higher fiduciary standard to instances when brokers give personalized advice.