Pursuant to a mandate in the Dodd-Frank act, both the Department of Labor and the Securities and Exchange Commission have been working to develop uniform fiduciary standards for investment advisers and broker-dealers. The efforts of the DOL and SEC have unfolded over the past five years with both floating proposals that have been met with stiff opposition from industry and in Congress. Each effort has hit its own respective roadblocks over the past year. However, despite eleventh-hour efforts by members of the investment industry and some on Capitol Hill, both the DOL and SEC appear to be moving ahead with their respective uniform fiduciary standards.
In 2010 the Department of Labor issued a proposal to amend ERISA fiduciary language to establish a more uniform standard between those providing investment advice, and those providing market-making services. The proposal would have defined the term “fiduciary” more broadly under ERISA to include any person who provided investment advise to plans for compensation, regardless of whether they were registered investment advisors or broker-dealers. The 2010 proposal was met with great outcry, and subsequently withdrawn. A new reformulated proposal has been drafted and is awaiting OMB approval before being issued publicly.
While the previously withdrawn and newly reformulated DOL proposals only focus on financial professionals working in the retirement space, the SEC is considering proposing a uniform fiduciary standard that would extend to broker-dealers the same obligation to provide advice in the best interests of their clients that now applies to registered investment advisors. After requesting and receiving comments from the public, the SEC staff issued a report in January 2011 recommending that the SEC address retail customer confusion about the standard of conduct required of investment advisers and broker-dealers, and enhance retail customer protection. In March 2013, the SEC issued a request for data and other information regarding a potential uniform fiduciary standard of conduct, seeking assistance in determining whether to engage in rulemaking concerning such a standard of conduct. SEC Chair Mary Jo White has indicated that the uniform fiduciary standard is amongst her highest priorities for the Commission in 2015.
Dissension among the SEC's commissioners troubles the path of an SEC proposal. SEC Commissioner Piwowar argues that the issues retail investors face when choosing between investment advisors and broker-dealers can best be handled by disclosure rather than imposing new duties on broker-dealers. Piwowar sees the benefits of a higher standard for broker-dealers as minimal when compared to the potential costs it may impose. Piwowar sees what is occurring in the UK following its introduction of a retail distribution review (RDR) as a real-world example of what could happen under a uniform fiduciary standard in the US. RDR bans advisers from taking a commission for selling products and requires that all fees that will be paid by clients to be agreed upon in advance. Before RDR, UK advisers did not charge for investment advice, but earned commissions from asset managers for selling their products. The change imposed by RDR has created what Piwowar calls an “advice gap," where the services offered by financial advisers are too expensive and retail investors are opting to manage their own portfolios rather than rely on advisers. Consequently, For this reason, Commissioner Piwowar stands opposed to changing the regime governing broker-dealers in the US.