SEC must forge ahead in fiduciary battle

While we applaud the Labor Department’s decision last week to rethink a proposed rule change that would have expanded the definition of a fiduciary under federal retirement law, we urge the Obama administration, Congress and the SEC to continue to press forward with their efforts to ensure that brokers are required to act in their clients’ undivided best interests at all times.

In the wake of the recent court defeat of the Securities and Exchange Commission’s proxy- access rule, Republican lawmakers are making a full-court press to sink efforts to require brokers and advisers to adhere to a rigorous, uniform fiduciary standard of care.

The SEC, the Republicans say, has failed to perform a thorough, quantitative analysis of the costs and benefits of switching to a single standard. Also, they say the commission has failed to prove that investors are better protected from fraud or abusive sales practices when they deal with advisers who are required to put their interests first.

For that, leading Republicans say the push for a uniform standard deserves to be banished to regulatory purgatory — never to see the light of day again.

“Until the SEC comes forward with a reason, backed by real data, that a fiduciary standard is necessary to address an actual problem … I’m not sure why such a rule making would be under consideration at this point in time,” Rep. Scott Garrett, R-N.J., chairman of the House Financial Services capital markets subcommittee, said two weeks ago.

We beg to differ.

True, the SEC has done an inadequate job of documenting the harm that investors face when brokers and advisers are held to differing standards. Nor has the agency offered any significant analysis of the potential impact of switching to a single standard.

That said, we disagree with Mr. Garrett’s suggestion that there is no reason to move forward with fiduciary rule making. We see no reason why the SEC cannot move forward with the rule-making process while also gathering data specific to what it hopes to accomplish.

INVESTOR CONFUSION

What is well-documented — and what Mr. Garrett and many other Republican leaders choose to forget — is that the vast majority of investors believe that brokers and advisers alike already are required by law to act in their best interests when giving advice.

Therefore, it is imperative the SEC move quickly to reconcile investor expectations with reality by raising the standard of care applied to brokers dispensing financial advice.

At a time when many public companies are scrapping defined-benefit pension plans — thereby forcing individual investors to shoulder the responsibility for funding their own retirements — it is incumbent on the SEC to make sure that investors receive the same high level of protection, regardless of whether the adviser sitting across from them is a registered representative of a broker-dealer or an investment adviser.

A single standard would eradicate confusion among investors about advisers’ titles, obligations and legal responsibilities to their clients.

The DOL was right to bow to bipartisan pressure to withdraw a proposed rule that would have subjected more advisers providing advice to a retirement plan or its participants to a fiduciary standard. Though well-intended, the proposed rule was too broad and would have discouraged advisers and broker-dealers from offering general investment-oriented advice or education.

It is our hope that the DOL will not abandon its efforts to ensure that people who provide personalized investment advice to plan sponsors and participants are held to a rigorous fiduciary standard.

FORGE AHEAD

The same goes for the SEC. While the commission likely will miss its self-imposed fall deadline for issuing a new standard of care for broker-dealers (as first reported last week on InvestmentNews.com), we urge the SEC to remain resolute in its efforts to improve investor protection by moving toward a uniform fiduciary standard of care.