In a recent speech, Commissioner Elisse Walter of the U.S. Securities and Exchange Commission (“SEC”) advocated that every financial professional should act as a fiduciary and the regulations of broker-dealers and registered investment advisers should be harmonized.
The premise underlying SEC Commissioner Walter is the belief “… that regulation of a financial professional should depend on what she does, not what she calls herself or how she is paid …. and retail investors should not bear the burden of understanding distinctions between financial professionals that have become increasingly less relevant over the years.”
In particular, the following examples were offered by SEC Commissioner Walter as to how the regulations of broker-dealers and registered investment advisers could be harmonized through either the SEC’s rule-making process under current statutory authority or legislative changes to the Securities Exchange Act of 1934 and Investment Advisers Act of 1940:
- Registration Process – a unitary registration system for broker-dealers and registered investment advisers with a vetting process whereby the registrant evidences capacity to carry on its proposed business;
- Licensing & Continuing Education – proficiency tests and continuing education requirements for all financial professionals;
- Disclosure Obligations – a uniform disclosure document explaining conflicts of interest (as currently with registered investment advisers) and central database of disciplinary and employment history of firms and their personnel;
- SRO Membership – a requirement that all financial professionals belong to a self-regulatory organization;
- Remedies – aggressive enforcement by the SEC and a non-mandatory arbitration venue (via an SRO) for clients of all financial professionals; and
- Uniform Standard of Conduct – a requirement that every financial professional act as a fiduciary, based upon the scope of the engagement and type of client, coupled with business practice rules.
At this point, it is unclear as to whether there is a consensus among a majority of the Commissioners of the SEC for this type of change and how Congress will weigh in on the regulation of financial professionals. RIA Compliance Consultants will continue to monitor and report developments to its readers.
