Compliance & Regulation

FSI Submits Comment Letter to SEC on Uniform Standard of Care

Group has supported the initiative, well before Dodd-Frank

WASHINGTON, D.C. – The Financial Services Institute (FSI) submitted a comment letter to the SEC in response to its request for information regarding a uniform standard of care for broker-dealers and investment advisors.

“We appreciate the opportunity to provide the SEC with information as they explore developing a uniform best interest standard for investment advice,” said FSI President & CEO Dale Brown. “FSI has supported the development of a uniform best interest standard of care since 2009 – before Dodd-Frank became law. A uniform standard of care for all types of financial advice is critical in order for investors to know that whether they are saving for a home, their children’s education or for a dignified retirement, their financial advisor is working in their best interest. It is equally important that a uniform best interest standard preserves investors’ access to a variety of investment products and services. We look forward to continuing our years-long work with the SEC on this top priority.”

Excerpts from the letter:

Defining a “best interest” standard of care
FSI members believe that acting in their client’s “best interest” means that a financial
advisor shall: place the interests of their client before their own; avoid material conflicts of interest
when possible or obtain informed client consent to act when such conflicts cannot be reasonably
avoided; and provide advice and service with skill, care and diligence based upon the
information known about their client’s investment objectives, risk tolerance, financial situation and
needs. This “best-interest” standard incorporates duties of care and loyalty10 and other similar
standards applicable under federal securities laws, but it expressly excludes basic financial
planning services where no specific personalized advice is given and other activities as set forth in
more detail in Section V(E) infra.

Further, we contend that the SEC can integrate any future standard of care into the
investor protections provided by the existing regulatory framework. To accomplish this, FSI
suggests that Financial Institutions and financial advisors be required to implement policies and
procedures reasonably designed to manage material conflicts of interest; and where such conflicts
cannot be avoided, to adhere to a two-tiered disclosure regime consisting of a concise disclosure
document to be supplemented with more detailed disclosures posted to the Financial Institution’s
web site. We explain our suggested policies and procedures requirements and the recommended
disclosure regime in greater detail below.

a uniform best interest standard [must] preserve investors’ access to a variety of investment products and services

The comment letter highlights several key points and issues including:

FSI members support a uniform best interest standard of care that is applicable to all professionals providing personalized investment advice to retail clients and enforced by the SEC as the appropriate jurisdictional agency.

  • Acting in a client’s “best interest,” which incorporates duties of care, loyalty and other similar standards applicable under federal securities laws, means to:
    -Place the interests of their client before their own;
    -Avoid material conflicts of interest when possible or obtain informed client consent to act when such conflicts cannot be reasonably avoided; and
    -Provide advice and service with skill, care and diligence based upon what they know about their client’s investment objectives, risk tolerance, financial situation and needs.
  • Where such conflicts cannot be avoided, a two-tiered disclosure regime consisting of a concise disclosure document to be supplemented with more detailed disclosures posted to the financial institution’s website.
  • Any uniform best interest standard created by the SEC should build upon, and fit seamlessly within, the existing and long-standing securities regulatory regime for broker-dealers and investment advisors.
  • A uniform standard should be consistent across retirement and non-retirement assets and coordinated with other regulatory entities.
  • A uniform standard should not restrict investors’ access to affordable products, necessary services or skilled investment advice.

Click here to read FSI’s comment letter.

 

About the Financial Services Institute (FSI): The Financial Services Institute (FSI) is the only organization advocating solely on behalf of independent financial advisors and independent financial services firms. Since 2004, through advocacy, education and public awareness, FSI has successfully promoted a more responsible regulatory environment for more than 100 independent financial services firm members and their 160,000+ affiliated financial advisors – which comprise over 60% of all producing registered representatives. We effect change through involvement in FINRA governance as well as constructive engagement in the regulatory and legislative processes, working to create a healthier regulatory environment for our members so they can provide affordable, objective advice to hard-working Main Street Americans. For more information, please visit financialservices.org.