As the Securities and Exchange Commission begins tofield comments on how the agency should regulatebroker-dealers’ conflicts of interests, one of the country’sforemost fiduciary advocacies is urging a simpler alternative to new rulemaking:Enforce the laws on the books before crafting a uniform fiduciarystandard.

CFA Institute, which charters fiduciaries around the globe, ishoping the SEC will revisit its enforcement policy ofsection 208(c) of the Investment Advisers Act before attempting todraft a uniform fiduciary standard, a process that undoubtedly willbe drawn out and contentious, even if executed efficiently.

An ardent supporter of a fiduciary standard for anyone providinginvestment advice to retail investors, the Institute staked aposition unique to the thousands of stakeholders on both sides ofthe debate throughout the rulemaking process for the Labor Department’s fiduciary rule.

Like countless opponents of Labor’s rule in industry and onCapitol Hill, CFA Institute has long advocated for the SEC to takethe lead in crafting a fiduciary standard.

But unlike those opponents, it expressed “great concern” whenLabor proposed delaying the rule in March.

“We believe further delay without an SEC rule in place will voidmeaningful protections for the interests of the vast and, in manycases, vulnerable sector of retirement investors, and would be aregrettable step backwards for the investing public, in general,”CFA Institute wrote in its comment letter before Labor ultimatelydelayed the implementation of a best-interest standard of care toJune 9.

In opposing the delay, the Institute distinguished itself fromthe rule’s proponents, saying its support of the rule was “temperedby our concerns about its complexity.”

Labor Sec. Acosta calls for SEC input

To the chagrin of the rule’s opponents, Labor SecretaryAlexander Acosta said in a Wall Street Journal op-ed he did nothave the legal authority to delay the June 9 implementation of thefiduciary rule’s impartial conduct standards.

He also called on input from the SEC as Labor advances itsreview of the rule, ordered by President Trump.

To that end, SEC Chair Jay Clayton issued a request for commentsin advance of any formal rulemaking process the SEC may undertakecrafting its own fiduciary standard.

Jim Allen, head of capital markets policy at CFA Institute, saysenforcing the Advisers Act in the immediate is the most pragmaticapproach the SEC could take to protecting investors from conflictedadvice.

“It will be extremely hard for the SEC to write a fiduciarystandard that cuts across all sectors of the industry and permitsactivities that investors want,” Allen told BenefitsPRO.

The need to weave attending carve-outs, exemptions, andenforcement provisions in a way that protects investor choice wouldinvariably lead to the type of complexity that CFA Institute iscritical of in Labor’s rule.

“You’d end up with a rule with a bunch of holes in it--the sizeof the old New York City telephone book looking like Swiss cheese,”said Allen.

As an advocate for a fiduciary standard of care on all whoprovide investment advice, Allen and CFA Institute are nonethelessrespectful of the role brokers serve as sales representatives inthe investment market.

The problem for retail investors, says Allen, is when brokersput themselves out as advisors, something the Investment AdvisersAct intended to deter.

Section 208 (c) of that Act prohibits any person from claimingto provide “investment counsel” unless they are a registeredinvestment advisor, or a fiduciary as defined under the law.

Over the past decade, more brokers began offering some clientsfee-based sales models, something Allen says the SEC encouraged.“Once brokers did that, they started calling themselves advisers.The SEC let them go along with that.”

In reestablishing, and enforcing, the titling distinctionestablished in the Advisers Act, the SEC could go a long way toaddressing widespread investor confusion as to whether or notrepresentatives are required to put investors’ best interestfirst.

That would stem potential conflicts of interest relativelyimmediately, says Allen.

“All we are saying is ‘let’s take care of the titling problemfirst.’ We think that would address a significant part of theproblem. It’s perfectly fine for brokers to sell investorsproducts. But when they call themselves advisers, that is confusingthe issue,” said Allen.

“If you know the person on the other side of the table is asales person, at least the investor starts off with a fightingchance,” he added.

A six-month fix?

By some counts, for more than a decade the SEC has been mullinga fiduciary standard and the implications of investors’ inabilityto distinguish fiduciaries from sales reps.

To say that the Commission has been stagnate in advancing newregulations, or even guidance on the matter, may be anunderstatement.

Even if the SEC were to prioritize a new fiduciary rule, theprocess could take years. But Allen thinks the Commission couldissue new enforcement guidance on the Advisers Act in as few as sixmonths.

“It would be a whole lot quicker to do it that way than tryingto write a new fiduciary rule,” he said.

Moreover, industry would be open to clearer enforcement guidanceon Section 208 (c), even though Allen says broker-dealers haveresisted that call in the past. That was before Labor finalized itsfiduciary rule, noted Allen. “Clarity on how titles are enforcedwould be a whole lot easier for industry to comply with.”

Some opponents of Labor’s rule would like to see it replacedwith more disclosure requirements.

Allen is among those who doubt that approach would effectivelyameliorate investor confusion.

“Even if it took half a page to write new disclosures, itwouldn’t be simple,” he said. “How much simpler can it be torequire sales persons to call themselves sales persons, and notadvisers.”