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SIFMA's Take on BD, IA Fiduciary Obligations
September 1, 2010
Section 913 of the Dodd-Frank Reform Act provides the basis for a strong, uniform standard of care for broker-dealers and investment advisers; the SEC is studying the issue and requested public comment. All the while, SIFMA maintains its support for a clearly defined, uniform federal fiduciary standard of care for BD's and IA's when providing personalized investment advice about securities to retail clients. And with that, SMD/General Counsel Ira Hammerman kicked off SIFMA's comment letter on the SEC's "Study Regarding Obligations of Brokers, Dealers, and Investment Advisers."
SIFMA's 'Take Aways'. SIFMA believes the following key principles should guide the development of a uniform standard of care:
- The interests of retail customers should be put first. When providing personalized investment advice to retail customers about securities, BD's and IA's should deal fairly with these customers, and, at a minimum, appropriately manage conflicts by providing retail customers with full disclosure that's simple and clear and allows retail customers to make an informed decision about a particular product or service.
- The SEC should clearly define "standard of care" and provide guidance as to how it can be implemented and tailored to respective business models.
- Retail customers should receive the same standard of care when receiving the same services irrespective of the regulatory status of the entity with whom they have a relationship.
- The uniform standard of care should be “business model neutral.”
- Investors should continue to have access to, and choice among, a wide range of products and services. The standard of care should allow BD's to continue to offer products and services that are available today - e.g., providing retail customers liquidity as principal, prop products, advice re: sophisticated investment strategies - and should allow retail customers to choose among various models for compensating their financial services provider.
- Where products and services involve material conflicts of interest, BD's and IA's should be able to pragmatically disclose to clients, in clear and effective communication, these conflicts of interest; and, they should receive clients' appropriate consent.
- The standard of care should apply to “personalized investment advice about securities," involving suitable investment recommendations for each specific retail customer, that do not affect client-directed or other ancillary services in a brokerage account.
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