The SEC has been accepting comment letters since last June regarding plans to promulgate a new uniform fiduciary standard. The Wall Street Journal has reported that a proposal could emerge as early as the end of the second quarter this year.

In the meantime, enforcement of the Labor Department's fiduciary rule, and most of its new disclosure requirements designed to prohibit conflicted advice on qualified retirement accounts, has been delayed until July 2019.

The Labor Department has requested input from the SEC as it considers potential revisions to the fiduciary rule. Opponents of Labor's rule have long argued that the SEC is better equipped to write a uniform fiduciary standard, and are urging both agencies to craft a harmonized rule that would address standards of care on all investment recommendations, whether they're inside qualified retirement accounts or not.

While the SEC has clearly prioritized crafting its own fiduciary rule, the process has the potential to be drawn out under the Administrative Procedure Act's rulemaking requirements. Crafting the Labor Department's fiduciary rule took more than five years.

The CFA Institute supported Labor's rule, and supports the SEC's intention to issue its own set of standards.

But it also says the SEC has the legal authority to issue regulatory guidance in the near term that would address investor confusion over the different standards that brokers and advisors are held to.

Specifically, the CFA is calling on the SEC to clarify the definition of “investment adviser” in the Advisers Act, to include any broker that provides personalized investment advice.

“We believe that titles suggesting personalized investment advice, such as 'financial adviser,' regardless of how they are used or spelled, should be reserved in the world of investment services solely for those who are RIAs under the Advisers Act,” writes CFA.

The Advisers Act includes a so-called incidental exclusion, which many fiduciary advocates say has allowed brokers to market themselves as investment advisers without registering as fiduciaries with the SEC.

In 2005, the SEC promulgated a rule that attempted to address the relationship between professional titles and fiduciary status. The rule determined “investment advisor” and “investment consultant” were generic terms. The rule did not limit brokers from using those titles without registering as fiduciaries.

Critics charged it was weakly written. The 2005 rule was ultimately overturned in a lawsuit.

Since then, the SEC has been quiet on the question of titling and fiduciary status, which has led to the abusive claim of the adviser title, argues CFA Institute.

“We believe brokers are providing personalized investment advice that is intended to influence the investment decisions and actions of specific individuals or accounts,” the Institute argues. That in turn has blurred the roles of brokers and fiduciary advisers in the minds of investors.

Legal authority

Beyond clarifying the definition of investment adviser, CFA says the SEC can issue new guidance on the Adviser Act's incidental clause.

The 2005 SEC rule included an exemption for brokerage firms that charge asset-based fees without registering as fiduciaries.

The U.S. Court of Appeals for the District of Columbia overturned the rule on the grounds that the SEC exceeded its authority in granting that exemption.

Notwithstanding that decision, CFA Institute says the SEC has the authority to issue guidance clarifying the definition of investment adviser and limiting how the Adviser Act's incidental clause is interpreted.

“It is our view, based on the advice of outside legal counsel that CFA Institute sought on this matter, that the SEC has the legal authority to clarify what constitutes 'incidental' under the Incidental Exclusion through administrative guidance,” writes CFA.

Brokers transacting sales of investments have a role in the retail market, CFA says.

But doing so under the guise of a fiduciary investment adviser exceeds a reasonable interpretation of the Advisers Act.

“These practices not only violate the Advisers Act on its face, but violate the principles of providing investor protection,” argues CFA.

“It is clear that brokers who imply the provision of advice by calling themselves financial advisors in what is a sales relationship are misleading investors about the nature of their relationships,” according to CFA's comment letter.

Issuing new administrative guidance could take a fraction of the time it will to write a new fiduciary rule.

By limiting non-fiduciary brokers from claiming the title of investment adviser, the SEC could address potential conflicts of interest long before final rules emerge from the SEC and Labor Department, according to CFA Institute.