While FINRA chief Richard Ketchum and SEC Commissioner Elisse Walter captured the headlines in recent weeks advocating SRO oversight of investment advisers and calling for a yet to be defined fiduciary standard for professional advisors, SEC Commissioner Luis Aguilar delivered a speech with contrasting views that brings clarity and precision to the regulatory debate on investment adviser and broker-dealer regulation.
In his address to the Investment Advisers Association earlier this month, Aguilar called into question proposals for a universal standard of care or other fiduciary-like standards, stating it’s unclear whether these standards measure up to the existing fiduciary standard. “[T]here is only one fiduciary standard and it means that a fiduciary has an affirmative obligation to put a client’s interests above his or her own,” he explained.
Aguilar also highlighted a key point seemingly ignored by others in the regulatory debate: the investment adviser industry has not materially changed its services in the past 15-20 years, while services of the brokerage industry have moved closer to the investment adviser industry. As such, discussions of “harmonizing” the investment adviser and broker-dealer regulatory structures or adopting new “universal” standards for investment advisers and broker-dealers appear to be missing the mark. According to Aguilar, “the better way to frame the issue is to ask how broker-dealers who provide investment advice should be regulated.”
Ultimately, Aguilar believes there is no real question what standard should govern broker-dealers that deliver investment advice - the fiduciary standard must apply. Accordingly, he called for advocates who seek to strengthen investment adviser regulation to “keep sacrosanct a real fiduciary standard.”
Aguilar also advocated that the best way to protect the fiduciary standard is to keep investment adviser oversight in the hands of the SEC, rather than passing the reins to an SRO. As noted in his speech, for the past 70 years the SEC has been prosecuting fiduciaries for breaching their duties and failing to mitigate or disclose conflicts to their clients. Moreover, the agency possesses the necessary experience of administering the principles-based regime upon which the investment adviser regulatory structure is based. No existing or proposed SRO can make such claims, and Aguilar argued that handing over control to an inexperienced entity “would be too costly for the industry and for the public in terms of both dollars and investor protection.”
In a debate that appears to have been fueled by broker-centric arguments, Commissioner Aguilar has provided a clear and logical counter-argument that better recognizes the fiduciary responsibility of those that advise investors and proposes a consistent and comprehensive system of regulation.
Fi360 fully supports Aguilar’s views on the existing fiduciary standard and regulatory oversight of investment advisers and intends to send a letter to SEC Chairman Mary Schapiro and her fellow Commissioners urging them to: (1) protect the strong fiduciary standard that exists under the Investment Advisers Act of 1940 and has been enforced by the Commission for nearly 70 years; (2) apply that fiduciary standard to broker-dealers who provide advice; and (3) ask Congress for the resources needed for the SEC to remain the regulator of the investment adviser industry. For anyone else interested in supporting Aguilar’s position, you can find the SEC Commissioners’ names and SEC Headquarters address on the SEC website.
* * * * *
Fi360 Webinar Reminder: On Tuesday, June 2, from 4-5 p.m., we'll be holding a free webinar on the regulatory reform debate. Kristina and Blaine will be discussing the strengths and weaknesses of regulatory reform proposals that have been made so far, what fi360 would like to see in reform, and how the delivery of financial services would change under that scenario. The session also will include steps you can take to affect change and an opportunity for Q&A at the conclusion. To register click here and make sure you share this info with anyone else you think may find value in this discussion.

Recent Comments