The SEC is making a concerted effort to tackle one of its most complicated issues — a standards of conduct package covering investment advisory professionals.
"This is one of the most complex rule-makings that the SEC has had to address," said Karen Barr, president and CEO of the Investment Adviser Association in Washington. "It is multifaceted, there are a wide range of business models and types of investment advice, there's a wide range of marketing practices and there are a wide range of interests. So I think this is complicated both from a technical perspective and politically."
The Department of Labor's fiduciary rule was similar in scope, but the 5th U.S. Circuit Court of Appeals vacated it in March, saying it represented regulatory overreach. While the SEC does not focus exclusively on retirement plans, industry experts said the proposals nevertheless could affect them.
The proposals, approved by the commission in April and put out for a public comment period that closed Aug. 7, feature three legs:
A best-interest standard that compels brokers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts.
The client relationship summary, or Form CRS, which necessitates that firms disclose to retail investors the nature and scope of their services, the types of fees customers would incur, the conflicts of interest faced by the firm and the firm's disciplinary history.
A standard of conduct for investment advisers that states advisers have a duty to act and provide advice that is in the best interest of the client.
In testimony before the House Financial Services Committee last month, Dalia Blass, director of the SEC's division of investment management, estimated there were more than 6,000 comments on the rule-making package.
In its comment letter to the SEC, the American Retirement Association applauded the commission's decision that recommendations to rollover or transfer assets from retirement plans should be covered under the best-interest standard.
But since many participants do not roll over their retirement plan accounts until they reach retirement age, "it is paramount that financial professionals be held to a high standard of care when providing investment advice to (fiduciaries) responsible for retirement plan assets," the ARA wrote. It asked the SEC to clarify the standard to avoid any "gap" in regulatory coverage.
The National Association of Government Defined Contribution Administrators, Lexington, Ky., sought confirmation in its comment letter on whether participants in defined contribution plans are covered under the best-interest standard. While the proposal states that "the definition of 'retail customer'... would cover, for example, participants in ERISA-covered plans and IRAs," the SEC did not address whether DC plan participants, like public employees who are not covered by the Employee Retirement Income Security Act of 1974, would be considered retail customers, NAGDCA stated.