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Results Of Charles Schwab Advisor Survey On Potential Costs Of SEC Rule Harmonization

According to a Schwab Advisor Services survey of independent registered investment advisors (RIAs), harmonization of rules for broker-dealers and RIAs on average could more than double compliance costs for RIAs in the first year of implementation while providing very little positive benefit to their clients. On average, RIAs estimate a 63% increase in time spent on compliance-related issues and an increase of $175,000 in first year compliance costs and $117,000 in each subsequent year. As noted in the results, an increase in compliance costs and time could put advisors in the difficult position of raising fees or decreasing client service.

Schwab commissioned the survey on behalf of RIAs and submitted the results along with a comment letter to the SEC in response to its request for data on the duties of brokers-dealers and investment advisors. Schwab continues to express support for an appropriately tailored uniform fiduciary standard when RIAs and broker-dealers give advice, but is concerned about the burden RIAs would bear if broker-dealer rules in areas such as licensing, supervision, and books and records are imposed on them.

“We appreciate the deliberative approach the SEC is taking, which gave us the opportunity to reach out to advisors to comment on rule harmonization,” said Bernie Clark, executive vice president and head of Schwab Advisor Services. “While we collected the data in response to the SEC’s request, we will use the process to educate RIAs on the potential rules and help them consider the cost and burden of compliance for their clients and their businesses.”

Based on the data, the potential rules outlined by the SEC could result in over $1 billion 1 in additional costs for the RIA industry. Additionally, many advisors (88%) believe that their clients would be negatively impacted by rule harmonization. The majority of RIAs (85%) have indicated that they would have less time to spend with their clients, 71 percent believe their clients would end up paying more for investment advice, and 63 percent of RIAs believe they would deliver less customized client service if the rules were implemented.

In its letter to the SEC, Schwab observed that “most RIAs are small businesses in the commonsense use of that term, and such a significant increase in regulatory burden would have to be justified,” and asked the Commission to “de-couple its consideration of the uniform standard of care from other potential rule areas for harmonization.” “Investors deserve advice that is in their best interest and free from conflicts,” said Clark. “But RIAs and broker-dealers are fundamentally different business models and therefore should not be governed by the same set of rules.”

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