The U.S. Securities and Exchange Commission (SEC) is undertaking a new study of the duties that advisors owe to retail investors when providing them with investment advice.
The SEC Friday published a request for data from the public about the benefits and costs of the current standards of conduct for broker-dealers and investment advisors when providing advice to retail customers, and alternative approaches to the standards of conduct. The commission notes that it is seeking information to help it as it considers whether to make new rules about the standards of conduct and regulatory obligations for broker-dealers and investment advisors.
“Studies have shown that few investors realize that the standard of care they receive depends on the type of investment professional they use. And often investors do not know which type of financial professional they are relying on,” said SEC chairman, Elisse Walter. “This request for information will help us in our ongoing consideration of alternative standards of conduct for certain broker-dealers and investment advisors, as well as potential harmonization of other aspects of regulation in this area.”
As part of the U.S. regulatory reform effort, the SEC was required to study a common duty of care for broker-dealers and advisors. Back in January 2011, SEC staff published a study recommending the adoption of a uniform fiduciary standard for broker-dealers and investment advisors.
In that study, SEC staff noted that advisors and broker-dealers are regulated extensively under different regimes, but that many retail investors do not understand the distinction, are confused by their roles, and the differing standards of care. It concluded that “retail customers should be protected uniformly when receiving personalized investment advice about securities regardless of whether they choose to work with an investment advisor or a broker-dealer.”
Late last year, the Canadian Securities Administrators (CSA) published a consultation paper on the issue of advisors’ duties, too. The comment period on that paper recently closed and regulators are now considering the comments. It remains to be seen whether they decide to make any changes to the current standards of care in Canada.
For this latest study, the SEC says it is particularly interested in receiving empirical and quantitative data, including analysis of the benefits and costs of potential approaches. However, it acknowledges that retail investors are unlikely to have significant empirical information, and welcomes any information they would like to provide.
The public comment period will be open for 120 days.