Late Friday night, the SEC submitted a report to Congress that recommended
the fiduciary standard of care be expanded to include any financial professional
that provides personalized investment advice to retail customers. The
fiduciary duty" recommended by the SEC would supersede the "suitability standard"
currently applied to broker-dealers. The change, a hot topic of debate
in the industry, would likely mean increased protection for investors,
many of whom don't understand the difference between the two standards.
The SEC report was issued after the conclusion of a study mandated by
the Dodd-Frank financial reform law, which gives the SEC the power to
write and implement a "universal fiduciary duty" rule. Since
the passage of the financial reform law, debate has raged over whether
the SEC would actually decide to recommend changes to the standards that
affect broker-dealers. Even now, with the recommendation finally submitted
to Congress, the controversy continues over whether the changes will (or
even should) actually take place.
Two commissioners, Kathleen Casey and Troy Paredes, have expressed reservations
about the SEC's recommendation. The article quoted a statement written
by the commissioners that read: "The study should be viewed as a
starting point for further research and consideration, rather than as
forming the primary basis for rulemaking," According to the statement,
Casey and Paredes are neither convinced that the two different standards
"systematically" harm investors nor "that a uniform standard
or harmonization would enhance investor protection."
Many disagree with the commissioners and want the SEC to write and adopt
the new uniform rules quickly. The continued (and heated) debate makes
it clear that even though the SEC's recommendation is a step forward
in the long road toward the implementation of a universal standard, it
is only one step of many.