Generally, we at fi360 have been pleased with what we've seen happen with the fiduciary debate over the past year and a half. The final bill passed by Congress wasn't all that we hoped for, but we are still closer to fiduciary reform than we imagined at the outset. And the awareness among advisors and investors throughout the debate has forced a broader adoption of a fiduciary culture than existed before the recent financial collapse. However, in his latest Fiduciary Corner column for InvestmentNews, Blaine advises fiduciary backers to contain any enthusiasm they may have about the Dodd-Frank Act for financial regulatory reform. He cited three reasons that the bill may fall short of establishing a strong fiduciary standard for all investment advice.
- Congress did not mandate that the SEC establish a fiduciary standard.
- Congress included language suggesting that business model issues be considered in rulemaking.
- A Senate provision for SEC self-funding didn't make it to the final bill.
Just one week later and a mere days after the bill was finally passed by both houses of Congress, we're already seeing early signs validating Blaine's tempered optimism. While it is true that many in Congress, Barney Frank in particular, and the majority of the SEC Commissioners have been vocal in their insistance that the intent is for the SEC to make fiduciary rules for advice, the fact of the matter is that Congress passed the buck on the issue when they had the chance to have it stop with them, leaving a happy ending for fiduciary backers anything but certain. With the SEC on the verge of kicking off their six month study of the issue, we've already seen one columnist wondering why SEC Chairman Schapiro would use the word "harmonization" when speaking on the fiduciary standard.
"Harmonization" has been a buzz word for the dilution of the fiduciary standard to a level that brokers can live with, so it is curious that she would choose that word now. Also, the combination of the business-model language in the bill and the lack of self-funding for the SEC could equate for a fiduciary future that isn't quite as rosie as we would have hoped for. Without the funds to step up their enforcement programs, some are saying the SEC may be forced to rely on FINRA as the fiduciary regulator, and, without being freed from the appropriations process, the SEC is still beholden to Congress, which just demonstrated their inability to take a firm stand for investors.
All in all, we still feel that the SEC wants to do what is in the best interests of investors. But if, in the end, we see them make rules that dilute the standard to appease Wall Street, we'll look back and see that the writing has been on the wall for a long time.
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