SEC Chief Endorses Stricter Standards for Investment Advice


March 17, 2015

Legally speaking, retirement advisers are not always required to place the interests of their clients ahead of their own. The effort to change that, however, gained steam on Tuesday when the nation’s top securities regulator announced plans to establish a higher standard industry-wide.

In her first public remarks on the issue, Mary Jo White, the chairwoman of the Securities and Exchange Commission, told one of Wall Street’s primary trade organizations that it was her “personal view” that the agency should adopt a stricter standard for the way that financial advisers recommend investments.

Specifically, White told the Securities Industry and Financial Markets Association (SIFMA) that registered investment advisers and broker-dealers alike should be subject to a standard known as the fiduciary duty, by which a client’s interests takes precedence above all else. Under current law, only registered investment advisers are subject to that higher standard, while broker-dealers must only provide advice that is deemed “suitable” for a client, meaning it technically meets the client’s needs or tolerance for risk, but legally doesn’t have to be in their best interest.

The SEC, White said, should “implement a uniform fiduciary duty for broker-dealers and investment advisers where the standard is to act in the best interest of the investor.”

Her remarks come less than a month after President Barack Obama endorsed a similar proposal from the Labor Department to place all advisers and brokers on the more stringent fiduciary standard. According to a White House estimate, the conflicts of interests that arise in the absence of a uniform standard cost investors at least $17 billion each year.

“You should have the peace of mind that the advice you’re getting is sound, that your investments are being protected,” Obama said. “If your business model rests on bilking hard-working Americans out of their retirement money, then you shouldn’t be in business.”

Echoing those remarks on Tuesday, White told a SIFMA audience in Phoenix, “I believe the SEC has an obligation” to establish a uniform standard for the industry.

White’s remarks indicate a potential broader impact on financial advisers. Brokers would be forced to operate under the fiduciary standard any time they provide advice to mom-and-pop retail investors, rather than solely when providing retirement advice, as under the Labor Department plan. An additional 4,500 brokers fall under the SEC’s oversight, compared to about 12,000 investment advisers.

White’s comments are all but guaranteed to escalate a long-running battle between Wall Street and the administration over how to regulate the market for retirement advice. Critics of an expanded fiduciary duty say it would only serve to raise costs for brokers, forcing them to either raise prices for middle-class workers or drop them altogether.

In a study released on Monday ahead of White’s remarks, SIFMA criticized the White House’s numbers, calling its analysis flawed and arguing that “the estimates are not directly found in the academic literature.”

Jason M. Breslow

Jason M. Breslow, Former Digital Editor



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