A number of consumer groups came down hard on the SEC last week delivering a tersely written letter
to the chair of the U.S. securities regulator for failing to protect retail investors. Advisors were the main topic of conversation.
The letter suggests that retail investors have been ignored for too long by the Commission; it’s high time that their protection be pushed to the front of the SECs agenda.
“Nothing is more important to the protection of average, financially unsophisticated investors than effective regulation of the broker-dealers and investment advisers they rely on to assist them with investment decisions,” say the authors of the letter.
“Research has shown that most retail investors prefer to invest through financial professionals and that they rely heavily on their recommendations. Yet few areas of the securities markets are as inadequately regulated. Investor advocates have been calling for regulatory reforms in this area for nearly 3 decades.”
One of the big areas of concern according to the authors of this letter is fiduciary duty. They feel that too many brokers are allowed to market their services without providing a fiduciary standard of care appropriate in these instances.
“Despite extensive study of the issue, and although investor advocates have consistently identified this as the single most important step the commission can and should take to improve protections for average investors, the Commission has still not taken concrete steps to address the problem.”
On Friday WP discussed the idea of fiduciary standard
with FPSC CEO Cary List. He is quite willing to support a dual-rail system whereby both a fiduciary standard and suitability standard can reasonably co-exist but only if regulators are able to provide consumers with a set of job titles that easily differentiates the difference between the two standards.
“The two standards can coexist,” says List, “but ONLY if the titles used made it clear that one title meant you are dealing with a financial professional and the other title meant you are dealing with an individual who is licensed to sell you and provide advice related to the products they are selling you, but who are not held to a professional standard.”
The authors of this report would like to see all financial advisors putting the interests of their clients first above their own and any others even when there are conflicts of interest. In this respect the desires of investor advocate groups on both sides of the border are lockstep in agreement.
Indeed, much of the subject matter in the eight-page letter sounds eerily similar to many of the issues currently being dealt with through CRM2.
As Canadian investor advocate Ken Kivenko pointed out in a mid-February WP article
about the systemic issues that plague the financial services industry in Canada, the blame for what ails it doesn’t lie with advisors but rather the C-suite managers of those firms and the various regulatory bodies.
While there might be a lot of things different about the two countries’ systems, last week’s letter suggests there’s also a lot of commonality.