Last week, the SEC’s Investment Advisory Committee recommended that the SEC enact rules to impose a fiduciary duty on broker-dealers when they provide personalized investment advice to retail investors. The Committee’s draft recommendations make clear, however, that any proposed rules should not “eliminate the ability of broker-dealers to offer transaction-specific advice compensated through transaction-based payments.”
The Committee said it “favors an approach that involves rulemaking under the Investment Advisers Act [of 1940] to narrow the broker-dealer exclusion . . . while providing a safe harbor for brokers who do not engage in broader investment advisory services or hold themselves out as providing such services.”
The SEC is under no obligation to act on the Committee’s recommendation. Nonetheless, the Committee’s recommendation may put additional pressure on the SEC, because the Committee was established under the Dodd-Frank Act for the specific purpose of advising and consulting with the SEC on, among other things, initiatives to promote investor confidence and the integrity of the securities markets. If the SEC does act, it remains to be seen whether it will follow the course suggested by the Committee or determine to establish a new standard specifically for broker-dealers engaged in advising retail accounts.
This is an update to our November 15 post, Uniform Fiduciary Standard Still a Priority, But No Timeline Yet.
