The U.S. securities industry estimates that adopting a fiduciary standard for broker dealers would cost about US$7.6 million for the average firm in the first year, an US$2.6 million annually after that; adding that the industry is willing to bear this cost to benefit investors.
The estimates come from the securities industry lobby group, the Securities Industry and Financial Markets Association (SIFMA), in a submission to the U.S. Securities and Exchange Commission (SEC), which is seeking data to help inform its cost-benefit analysis of adopting a uniform fiduciary standard for broker-dealers and investment advisers.
SIFMA says that it estimates the direct cost of implementing a new uniform fiduciary standard in terms of two specific sources of added cost: the costs of providing additional disclosure to clients; and the costs of developing and implementing new compliance and supervisory systems, procedures and training programs to adapt to the uniform fiduciary standard.
Based on a survey of 18 SIFMA firms (12 large broker-dealers and 6 regional broker-dealers), it estimates that the costs of developing and maintaining a disclosure form and customer relationship guide would average US$2.6 million in the first year, with estimates ranging from US$1.2 million to US$3.9 million. The average annual cost of updating and maintain the relationship guide was estimated to be about US$631,000.
The costs of developing new compliance and supervisory systems and training programs and implementing it for one year were estimated at an average of US$5 million, with a range of approximately US$1 million to US$6 million. Firms also estimated that it would cost about US$2 million per year to update, maintain and implement those systems, procedures and programs.
“While the costs projected by our members clearly are not insignificant, these are costs our industry is generally willing to bear in order to benefit retail clients with a fiduciary standard,” said Ira Hammerman, senior managing director and general counsel at SIFMA.
SIFMA notes that, as a point of comparison, it asked firms to report the total costs incurred to date to implement a new suitability rule, which took effect in July 2012. It reports that, of 17 responding firms, the average firm estimated it had spent approximately US$4.6 million to comply with the new rule.
In its submission, SIFMA reiterates its support for a uniform fiduciary standard of conduct, as well as its support for broader harmonization of broker-dealer and investment adviser regulations. However, it also reiterated its strong opposition to simply adopting the standard that already applies to investment advisers, warning that this approach could “create a high risk of confusion and misapplication, and will negatively impact client choice and access to the products and services that best suit their needs.”
“SIFMA remains strongly supportive of a uniform fiduciary standard for broker-dealers and investment advisers when providing personalized investment advice about securities to individual retail clients,” said Hammerman.