Securities and Exchange Commissioner Michael Piwowar has expressed doubts about the need to expand the “standard of care” fiduciary obligation to retail brokers.
“It is not clear that changes in the regulations applicable to broker-dealers and investment advisers are necessary, including the adoption of a uniform fiduciary duty,” the Republican commissioner said in an address last week to the National Association of Plan Advisors.
Comments by Piwowar’s fellow commissioners suggest that a vote on expanding the fiduciary standard could be split between two Democrat commissioners in favor of moving ahead and two Republican commissioners leaning against it. SEC Chairman Mary Jo White, who is the fifth commissioner on the panel, said one of her priorities this year is to bring the panel to a decision on whether to proceed.
While insisting he has not yet made his decision, Piwowar did acknowledge that retail investors are confused about the duties of broker-dealers and investment advisors.
"As demonstrated by the endurance and passion of arguments on all sides, this question is not just really hard to answer. It is really, really, really hard – with three reallys,” he said at the start of his remarks.
Registered investment advisors are compensated on a fee-basis, and are beholden to the fiduciary standard of care under ERISA. Brokers traditionally have been compensated by commissions on sales of securities, and are not subject to fiduciary standards.
While brokers are not regulated as fiduciaries, they are required by both the SEC and FINRA to “deal fairly” with their customers. That includes a suitability obligation, which requires broker-dealers to recommend options consistent with the investment profile of their customers, Piwowar said in his prepared remarks.
They are also already required to disclose material conflicts of interest, he said.
Proponents of an industry-wide, uniform fiduciary standard argue the existing regulations for brokers are too soft.
Piwowar suggested the contrary, citing regulatory actions brought by FINRA over the past year and a half. “As of this September, these actions have resulted in a total of approximately $7.1 million in fines assessed against 25 firms,” said Piwowar.
FINRA, which is funded by the industry it regulates, has also barred 20 registered brokers and suspended 53, and ordered $4.8 million in restitution payments to investors.
“Before adopting any new rules or rule amendments, the commission has to consider what are the marginal benefit and what are the marginal costs,” he said.
Piwowar said he wasn’t “aware of any evidence that retail investors are systemically being harmed or disadvantaged under one regulatory regime as compared to the other.”
He also pointed to bipartisan concerns in Congress that a comprehensive fiduciary standard could create new costs and liabilities that may price middle- and lower-income workers out of the market.
Members of the Congressional Black Caucus, along with members of the Congressional Hispanic Caucus and a member of the Congressional Asian Pacific American Caucus have voiced concern that a uniform fiduciary standard could create a barrier to qualified retirement planning.
“I share these serious concerns about investors potentially having limited financial advisory options or being locked out from receiving investment advice altogether,” said Piwowar.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
