Los Angeles partners Bruce Ashton and Fred Reish, along with Chicago partners Jim Lundy and Andrew Raby, commented on the SEC’s recently proposed regulations governing broker-dealers and registered investment advisers in an Employee Benefit News article entitled “SEC Assigns 'Duty of Loyalty' for Financial Advisers.”
Jim provided some background on existing industry understandings of firms’ fiduciary duty, explaining that “[i]t is based on common law, in particular SEC v. Capital Gains Research Bureau from 1963. From that case and its interpretation, the SEC enforced fiduciary duty under Section 206 of the [Investment] Advisers Act. The industry accepted it and built up around that duty.” He also observed that “this is not new guidance,” and just reaffirms existing understandings while clarifying a few points.
Fred noted that “while Regulation Best Interest for broker-dealers is limited to advice to retail customers about financial transactions and strategies,” the interpretation guiding registered investment advisers “applies to all advice to all accounts,” including retail consumers, plan sponsors and plan participants.
Andrew discussed the issue of potential conflicts of interests as addressed in the proposed regulation, saying, “I can’t think of a situation where an adviser has a conflict that is so severe it couldn’t be mitigated by full disclosure,” and that “[i]n my experience, the more unusual and stronger the conflict, the more robust the disclosure has to be. I fail to think of a situation where you have to change your business practice to eliminate the conflict.”
Bruce looked at the regulation from the standpoint of ERISA, describing ERISA’s fiduciary duty requirements in comparison with the SEC’s: “The SEC interpretation seems to be very similar to the ERISA standards and the best interest standards described in what is soon going to be the defunct DOL Best Interest Contract Exemption.”
Read “SEC Assigns 'Duty of Loyalty' for Financial Advisers.” (log-in required)