EDITORIAL COMMENT: SEC Promised Advisory Rule Clarity, Questions Linger

Tom Burroughes Group Editor June 24, 2019


The SEC's "best interests" reform of how advisors are regulated has prompted anger at the apparent downgrading of a fiduciary test. What to make of the last few weeks?

It appears that the US wealth management sector is as far away as ever from getting a clear-cut regime for overseeing how advice ought to be paid for.

A few weeks ago, the Securities and Exchange Commission voted by three to one for the Regulation Best Interest, and supported other actions to improve disclosures and clarify advisors’ responsibilities. Regulators had started proposals for such a move a year ago.

Unfortunately, it appeared from early readings that the word “fiduciary” as a requirement on registered investment advisors had been omitted in the SEC’s wording. The apparent dilution or removal of such a test has angered wealth management industry figures, such as members of this publication’s editorial advisory board. One member, Michael Zeuner of WE Family Offices, called the outcome a “travesty”. 

However, it appears from press reports that the SEC does not actually ban registered investment advisors from using “fiduciary” in their marketing literature. 

The attempt by the SEC to bring out a form of words covering advice, including a “best interests”, follows a failed attempt by the Department of Labor to enact a fiduciary rule for the sector. At the core of the issue is whether regulators should push the industry towards charging fee-based advice and away from commission-based remuneration, or leave it to the free market where consumers (hopefully) make informed choices about what they get into. 

Media coverage pointed out that the SEC has issued a final rule spelling out client relationships, or Form CRS. The document must be shown to customers and is designed to point out the differences between broker dealers, advisors, and other players. On page 27 of that form, the regulator says: “For example, we are substantially revising our approach to disclosing standard of conduct and conflicts of interest to make this information clearer to retail investors, including (among other changes) eliminating the word 'fiduciary' and requiring firms - whether broker-dealers, investment advisers, or dual registrants - to use the term 'best interest' to describe their applicable standard of conduct." 

The June 5 SEC press release says: “An investment adviser owes a fiduciary duty to its clients under the Advisers Act - a duty that is established by and enforceable through the Advisers Act. This duty is principles-based and applies to the entire relationship between an investment adviser and its client. The final interpretation reaffirms, and in some cases clarifies, certain aspects of the federal fiduciary duty that an investment adviser owes to its clients.”

Considering all this, perhaps the best course will be for the industry to go back to a clean sheet of paper, and instead of the SEC or other government agencies seeking to micro-manage what firms can and cannot say in their ads and documents, to require the highest standards of honesty and disclosure over fees and pricing. Let firms that want to adopt a commission-based sales model do so and spell that out in bright lights. Let advisors who make a virtue of their fiduciary standards do so and be held accountable if things go wrong and be open to lawsuits if they lie. It may, in these bureaucratic, post-2008 days be unfashionable to say so, but perhaps the best solution to this situation is to maximize sunlight and competition. Surely that is better than a few more turns on the regulatory soap opera?

(As ever, feel free to email the editor at if you have views on this and other matters.)

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