October 8, 2013 — In what might cause the biggest uptick in quality of service for investors since the 1940’s, a subcommittee of the Investor Advisory Committee to the SEC has just circulated a draft proposal recommending that the SEC proceed with a rule requiring brokers to PUT THE BEST INTERESTS OF THEIR CLIENTS BEFORE THEIR OWN when providing investment advice. This has not been a requirement for brokers prior to now, however, this is currently the standard that registered investment advisors (RIAs) such as Tiemann Investment Advisors must meet when providing investment advice or services. Although the October 10th, 2013 meeting of the Investor Advisory Committee has been postponed due to the federal government shutdown, the subcommittee’s proposal could be voted on by the committee in a teleconference at any time.
Another industry group, the Securities Industry and Financial Markets Association, also submitted a recommendation to the SEC to improve the fiduciary standard used by brokers. Its recommendation did not seek to bring brokers all the way to the level of RIAs but called for the SEC to device a new standard that enables brokers to still sell proprietary products and provide other exemptions for conflicts that are “disclosed.” Conforming the higher standards required of RIAs to brokers is a challenge because of the difference in their business models and often skill sets but according to Barbara Roper, a member of subcommittee, the recommendation “is not an attempt to change all brokers into advisers. We bent over backwards to ensure that this would be done in a way that is consistent with the broker-dealer business model. This is not an effort to demonize brokers. This is really just an expression of what the standards should be when brokers give advice.” (Source: Mark Schoeff Jr.’s SEC fiduciary panel calls for ’40 Act rule, in Investment News Online.)
