Fiduciary Standard for Brokers Not Likely Soon, If Ever

January 14th, 2012
in econ_news

Econintersect:  Nearly one year after the SEC (Securities and Exchange Commission) started work on defining what should be the fiduciary standard broker-sharkSMALLfor retail stock brokers, there is no indication that anything near a result has been achieved.  In the calendar of regulatory activity for 2012 the topic is listed under “dates to be determined.”   See the frequent GEI News coverage of the fiduciary standards debate.  The general concept of fiduciary responsibility is that a fiduciary must put client interests ahead of his interests.  An example would be that a fiduciary would be required to provide a client with an S&P 500 Index mutual fund with lower operational fees rather than one with higher fees that paid him a larger commission.  Such an obligation does not exist under the “suitability standard” that has been applied to broker conduct for several decades.

Follow up:

The Republican implemented practice of conducting economic impact assessments of new regulations before they are proposed or implemented is one of the things slowing the process.  From Investment News:

In a letter to Congress last week, the SEC said that it will gather information for an economic analysis of the impact of a standard-of-care regulation.

“SEC staff, including [Division of Risk, Strategy and Financial Innovation] economists, are drafting a public request for information to obtain data specific to the provision of retail financial advice and the regulatory alternatives,” SEC Chairman Mary Schapiro wrote Jan. 12 to Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Capital Markets Subcommittee.

“In this request, it is our hope commenters will provide information that will allow commission staff to continue to analyze the various components of the market for retail financial advice,” she wrote in the letter obtained by InvestmentNews.

The SEC intends to launch the public request next month, observers said.

After the SEC compiles the data, it will have to prepare the cost-benefit analysis.

It is expected that the entire process could take most of the year.  In that event the Republicans are probably hoping that they will sweep the fall elections, and then the course of financial regulation will be changed to their liking.

Source:  Investment News and GEI News









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