Fiduciary Standard: Business Booster or Budget Buster?

SEC gathers information related to the cost-benefit of a uniform standard.
By MainStreet Team ,

By Hal M. Bundrick

NEW YORK (

MainStreet

)--As the financial services industry wrangles over a uniform fiduciary standard for investment advisers and broker-dealers, two major associations have submitted information to the Securities and Exchange Commission, one emphasizing the benefits, another estimating the costs.

In a letter to the SEC, the Financial Planning Coalition said research conducted by the Aité Group reported that broker-dealers who are already operating under the fiduciary standard "experience stronger asset growth, stronger revenue growth, and obtain a greater share of client assets than those that provide services primarily under a non-fiduciary model."

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The Coalition - which is comprised of Certified Financial Planner Board of Standards, Financial Planning Association and the National Association of Personal Financial Advisors - stated that a "fiduciary standard will benefit retail customers and their financial advisers, and will not impose significant costs."

Currently, investment advisers are held to a "client first" fiduciary standard while registered reps of broker-dealers abide by a less-strict "suitability" standard.

"The fiduciary standard should be no less stringent than the existing fiduciary duty standard under the Investment Advisers Act of 1940," the Coalition's letter states. "This standard should be based upon the core principle that, when providing personalized investment advice to retail customers, a financial adviser (however registered) always must act in the best interests of those customers. The SEC should adopt this uniform fiduciary standard immediately."

The group also claims that the conversion of fee-based brokerage accounts to fiduciary accounts does not lead to increased costs or decreased services.

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Meanwhile, The Securities Industry and Financial Markets Association (SIFMA), an association of securities firms, banks and asset managers, issued its own cost-benefit thesis on the matter.

"SIFMA remains strongly supportive of a uniform fiduciary standard for broker-dealers and investment advisers when providing personalized investment advice about securities to individual retail clients," said Ira Hammerman, senior managing director and general counsel. "In our effort to be most helpful and responsive to the SEC, we surveyed our member firms to collect data and information about the costs of creating and updating disclosures, systems and procedures to implement a uniform fiduciary standard."

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SIFMA estimated $1.2 to $3.9 million would be spent by firms to develop and maintain a disclosure form and customer relationship guide to approximately 50.6 million retail customers. The average annual cost of updating and maintaining the relationship guide was estimated to be about $631,000.

The costs of developing and implementing a new, comprehensive compliance and supervisory system, procedures and related training programs to adapt to the uniform fiduciary standard for one year would average approximately $5 million, according to SIFMA. Those same firms surveyed estimated that it would cost an estimated $2 million per year to update, maintain and implement those systems, procedures and programs.

--Written by Hal M. Bundrick

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