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Financial professionals giving investment advice would face more SEC regulation under a fiduciary rule proposal set for an initial vote April 18 after a years-long industry push for agency action.
The Securities and Exchange Commission will vote on a proposed rule that would create a standard of conduct for broker-dealers when they make recommendations about stock transactions or investment strategy to retail investors, according to an open meeting notice posted on the agency’s website April 11. The commission also will consider whether to offer its own interpretation of the standard of conduct for investment advisers and rules that would require them and brokers to give a “brief relationship summary” to investors, the SEC said.
Investment advisers have a fiduciary duty to place client interests ahead of their own under the Investment Advisers Act of 1940. Brokers advising retail investors don’t have a similar best interest standard under securities law, however.
SEC Chairman Jay Clayton, an independent, has made work on fiduciary regulation a priority since President Donald Trump appointed him to the commission in May 2017. The Labor Department in 2016 adopted a fiduciary rule for brokers working on retirement accounts. The SEC is authorized by the 2010 Dodd-Frank Act to initiate rulemaking, but has yet to do so.
“The staff has worked very hard,” SEC Chairman Jay Clayton told Bloomberg Law April 12. “My fellow commissioners have worked hard. I’m looking forward to moving the process along.”
The chairman declined to discuss the specifics of the proposed rulemaking with Bloomberg Law. Representatives for the SEC’s four other commissioners also declined to comment or didn’t immediately respond to requests for comment.
Karen Barr, president and CEO of the Investment Adviser Association, which has pushed for SEC action, said her organization is happy the commission is poised to propose a new standard of conduct rule for brokers and backs efforts for new disclosure on financial professionals’ relationships with investors.
But the group has concerns with the agency’s interest in issuing interpretative guidance on the standard of conduct for investment advisers, she said.
“The IAA believes that the fiduciary duty under the Investment Advisers Act is well-understood and has served investors, the economy and the capital markets well for more than 75 years,” Barr said in a statement to Bloomberg Law. “We are encouraged to see that the SEC will solicit comment from the industry on any proposed interpretive guidance.”
The open meeting will be the second such gathering since Democratic Commissioner Robert Jackson and Republican Commissioner Hester Peirce joined the SEC. Peirce has been particularly outspoken about her concerns surrounding the Labor Department’s fiduciary rule, saying the SEC is better equipped to handle the matter.
“We saw the DOL come in and take some steps that were, in my mind, quite destructive,” she said at an Investment Adviser Association conference in March. “It’s good for us to come in with our experience.”
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