Financial Education for Securities, Banking, & Insurance Professionals.
The SEC has been granted the authority, once the full study is concluded, to move to a rulemaking process to extend the fiduciary standard of care to brokers and dealers. They are also allowed under the law to insert a definition of "fiduciary" into the Investment Advisors Act of 1940 and to use the same definition in the Securities Exchange Act of 1934. The SEC is also authorized by Dodd-Frank to harmonize enforcement for advisors and for broker-dealers and can make the decision to end certain types of compensation schemes if they are determined not to be in the public's interest.
Advocates of a broader fiduciary standard argue that retail customers seeking investment advice would benefit from a single, clear standard. Those against extending the fiduciary standard see limitations on consumer choice and access to certain products and distribution models and increased costs and litigation. Some also feel that the suitability standard's rules-based approach may provide stronger protection for consumers before a sale takes place than a more nebulous fiduciary standard.
The impact on insurance producers who sell variable products is often omitted from the debate, but that impact could be substantial. Advocates for insurance producers make the clear point that it is impossible to be an agent for the company and the client at the same time. Underwriting is a clear part of variable contacts, and the agent relationship affects product pricing, availability, and distribution channels.
The study currently underway by the GAO is looking at the regulation of "financial planners," exploring whether there are gaps in regulations that should be addressed for advisors who call themselves "planners." The initial advocates for the study were hoping to force planning to be defined as an independent profession and regulated separately. Problematic at best, the concept behind the study also touches on the use of credentials and whether duplicative registration and additional oversight of planners is needed. The fiduciary standard as it applies to all financial advisors is also a topic the GAO is exploring.
Both studies are required to be completed by the end of the year, but the work may be concluded sooner by one or both organizations. Watch for additional information and notices of any public comment periods from industry advocacy groups.