Broad Coalition Message to Congress : Support H.R. 1627 to Improve SEC Investor Protection

WASHINGTON, D.C. -In a letter sent last week to all Members of Congress, a broad – based group of organizations, including consumer and industry groups and state regulators, urges support of H.R. 1627, the Investment Adviser Examination Improvement Act of 2013. The bill – sponsored by Rep. Maxine Waters (D-CA) and Rep. John Delaney (D-MD) – would authorize the Securities and Exchange Commission (SEC) to collect an annual “user fee” from registered investment advisers to increase the frequency of investment adviser examinations and to better protect American investors.

According to the groups that signed the letter, “It is imperative that the SEC be able to properly oversee the activities of registered investment advisers. We are deeply concerned that the SEC’s current inability to examine investment advisers more frequently increases opportunities for investor fraud and abuse.”

The group added: “A user fee is the best option to increase investor protection because it is an efficient, economical, and common sense solution to the SEC’s chronic problem of insufficient examination resources.”

The coalition is composed of a broad range of organizations, including AARP, Consumer Federation of America (CFA), Certified Financial Planner Board of Standards (CFP Board), Financial Planning Association® (FPA®), Investment Adviser Association (IAA), National Association of Personal Financial Advisors (NAPFA), and the North American Securities Administrators Association (NASAA).

The SEC has responsibility for examining about 11,000 federally registered investment advisers that manage approximately $48 trillion in assets. But the agency faces significant resource challenges in maintaining a robust examination program, as evidenced by the low examination rate of 8% last year and the projected 10% examination rate for the current year. Using recent examination rates as a barometer, the typical federally registered investment adviser can expect to be examined only once every 12 to 13 years. Moreover, approximately 40% of federally registered investment advisers, or two out of every five, have never been examined.

The group’s letter to Congress underscored that a user fee provides a funding source that impacts neither taxpayers nor the federal treasury. H.R. 1627 contains a number of meaningful safeguards that ensure that the fees will be collected and deployed in a manner consistent with Congressional intent. For example, the bill:

  • mandates that any fees collected be dedicated solely to an increased level of adviser examinations by the SEC;
  • requires the SEC to develop its fee formula through a public notice and comment rulemaking;
  • requires the SEC to consider, among other things, factors such as the size of an adviser, the adviser’s assets under management, and the adviser’s risk profile in determining a fee; and
  • requires the Comptroller General to conduct a biennial audit of the SEC’s use of fees.

SEC Chair Mary Jo White has stated that, due to a lack of resources, the SEC is unable to “enforce compliance with the securities laws in a way that investors expect and deserve.” In November, the agency’s Investor Advisory Committee recommended that the SEC request user fee legislation from Congress. The recommendation noted that the current level of examination “is simply inadequate to detect or credibly deter fraud” and that the SEC
cannot “enforce compliance with the securities laws in a way that investors expect and deserve.”

Financial Planning Coalition Statement on Obama Administration’s Opposition to H.R. 2374

WASHINGTON, D.C. – The Financial Planning Coalition issued the following statement regarding the Obama Administration’s opposition to H.R. 2374:

“The Financial Planning Coalition applauds the Obama Administration in standing up for American investors by stating that it would recommend the President veto H.R. 2374, the dubiously titled bill ‘Retail Investor Protection Act.’ If it were to become law, this legislation would have a chilling effect on crucial rulemaking efforts for both the SEC and the Department of Labor in extending the common sense ‘put the client first’ fiduciary standard of care and continue to leave American investors without important protections. By making clear its opposition to this legislation, the Administration is putting American investors first.”

Financial Planning Coalition Opposes H.R. 2374: “Investor Protection Bill in Name Only”

Letter to Congress Urges Opposition to Bill that will Impede the Implementation of a Fiduciary Standard 

WASHINGTON, D.C. – In a letter sent today to all Members of Congress, the Financial Planning Coalition urges them to oppose H.R. 2374, the Retail Investor Protection Act, which would delay, or even prevent the U.S. Securities and Exchange Commission (SEC) and the Department of Labor (DOL) from developing fiduciary rules crucial to investor protection.

“H.R. 2374, which is an investor protection bill in name only, would prevent [the SEC and DOL] from engaging in rulemaking crucial to investor protection and would leave American investors more vulnerable to potential abuses,” stated the Coalition – comprised of Certified Financial Planner Board of Standards (CFP Board), the Financial Planning Association® (FPA®) and the National Association of Personal Financial Advisors (NAPFA).

The Coalition letter goes on to conclude: “The Coalition views H.R. 2374 as a ‘back door’ attempt to undermine investor protection provisions in Dodd-Frank and to prevent the SEC and DOL from proceeding with investor protection rulemakings consistent with appropriate cost-benefit analyses and routine inter-agency coordination.”

The Coalition emphasizes the consequences the bill would create for investors, noting that the Dodd-Frank Wall Street Reform and Consumer Protection Act authorized the SEC to establish a single uniform fiduciary standard of conduct for both broker-dealers and investment advisers. The passage of H.R. 2374 “would substantially impede or completely prevent the SEC from proceeding with a congressionally authorized and long-needed rulemaking that would allow all investors to receive investment advice that is based on their best interests,” the Coalition writes.

The Coalition cautions that the proposed legislation would needlessly slow DOL’s fiduciary rulemaking under the Employee Retirement Income Security Act (ERISA), prohibiting DOL from adopting a fiduciary rule under ERISA until 60 days after the SEC has adopted a final uniform fiduciary rule, effectively preventing DOL from implementing its own regulations should the SEC decide not to proceed with its own rulemaking.

Study Shows Advisers, Clients Benefit from a Fiduciary Standard without Reduced Access to Services or Increase in Costs

In letter to SEC, Financial Planning Coalition Opposes a Weakened Fiduciary Standard

WASHINGTON, D.C. – In a letter to the Securities and Exchange Commission (SEC) submitted July 5, the Financial Planning Coalition said it would “vigorously oppose” attempts to weaken the fiduciary standard and submitted research showing a client-first standard does not limit advice to “mass market” clients. The study also revealed that broker-dealers working under a client-first standard experience greater success compared to those operating under a suitability standard and without a significant increase in their costs.

The study – conducted by the Aité Group – was part of the Coalition’s response to the SEC request for information (RFI). The letter and study can be found here. A fact sheet with highlights of the study can be found here.

In its letter, the Coalition – which is comprised of Certified Financial Planner Board of Standards, Financial Planning Association and the National Association of Personal Financial Advisors – stated that a “fiduciary standard will benefit retail customers or their financial advisers, and will not impose significant costs.”

“The ‘best interest of the customer’ standard should be the key feature of any uniform fiduciary standard of care,” the Coalition stated in its letter. “However, the RFI does not adequately recognize this central concept … Indeed the standard contemplated in the RFI is little more than the existing broker-dealer suitability standard supplemented by some conflict of interest disclosures.”

The Coalition reiterated its view that the current assumptions made by the SEC would “significantly weaken the fiduciary standard for SEC-registered investment advisers while adding few meaningful new protections for retail customers.”

“We vigorously oppose such an approach, because it would have negative consequences for retail customers,” said the Coalition, urging the SEC to promptly propose a uniform fiduciary standard that is consistent with the existing standard required under the Investment Adviser Act of 1940.

Other key points of the Coalition letter include:

  • The RFI’s focus on enhanced disclosure suggests that such disclosure is sufficient for fiduciary standard. While disclosure of conflicts of interests is a beneficial and important step, disclosure alone is not sufficient to discharge an adviser’s fiduciary duty.
  • The Coalition letter identifies specific issues with the RFI’s assumptions and proposes an alternative set of assumptions for a uniform fiduciary standard consistent with Dodd-Frank and the Advisers Act.
  • The alternative standards of conduct and approaches discussed in the RFI are inconsistent with Section 913(g) of the Dodd-Frank Act.
  • The SEC should address harmonization of investment adviser/broker-dealer rules after it adopts a uniform fiduciary standard of care: the two issues are conceptually distinct and should not be linked.

The research submitted as part of the comment letter also indicates that “applying a uniform fiduciary standard on broker-dealers will have little if any effect on the availability of advice to customers.”

Those surveyed reported that broker-dealers who are already operating under the fiduciary standard “experience stronger asset growth, stronger revenue growth, and obtain a greater share of client assets than those that provide services primarily under a non-fiduciary model.”

The research also revealed:

  • A majority of brokers and advisers are already operating under a fiduciary standard.
  • Those brokers and advisers agree that the standard should apply when giving advice to retail consumers and that requiring this client-first standard has very little impact in deciding whether to serve “mass market” clients.
  • Conversion of fee-based brokerage accounts to fiduciary accounts shows that a fiduciary standard does not lead to increased costs or decreased services.

Financial Planning Coalition: Draft Legislation May Slow Fiduciary Standard Rulemaking, Leave Consumers Vulnerable

Washington, D.C. – The Financial Planning Coalition – comprised of Certified Financial Planner Board of Standards, Inc. (CFP Board), the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA) – today expressed concern regarding a discussion draft of legislation circulated by Rep. Ann Wagner (R-MO), which could have the effect of slowing implementation of a rule extending a fiduciary standard to broker-dealers who provide personalized investment advice.

If enacted, the draft legislation – which is slated to be discussed tomorrow during a House Financial Services Subcommittee hearing – could add a roadblock to implementation of a key Dodd-Frank provision that allows the Securities and Exchange Commission to adopt a rule requiring broker-dealers to adhere to the same fiduciary standard as investment advisers.

While the Coalition appreciates the Subcommittee’s recognition that adopting a uniform fiduciary standard is a critical element of enhanced investor protection, it is nevertheless concerned that some of the draft legislation’s new requirements would be duplicative of existing Federal law and may have the unintended consequence of frustrating any ongoing efforts to increase standards of care for financial professionals.

The Coalition looks forward to working with Rep. Wagner, as well as other Members of Congress, and being a constructive participant in efforts to find ways to help protect investors.

Survey: American Investors Want More Protection

Financial Planning Coalition Calls on New SEC Chair to Focus on Fiduciary, Increase Oversight of Investment Advisers

Washington, D.C. – Results of a new survey released today by the Financial Planning Coalition show that by an overwhelming margin, Americans want the federal government to play an active role in protecting investors, including extending a fiduciary standard to broker-dealers who provide personalized investment advice to retail clients. Consumers also want the federal government to protect investors by increasing oversight of investment advisers.

As the Senate Banking Committee considers the nomination of Mary Jo White as the next Chairman of the Securities and Exchange Commission (SEC), the Coalition believes that this nationwide survey demonstrates the public’s continued desire for the SEC to fulfill its mission to protect investors.

The survey showed:

  • 80 percent of American investors do not believe the federal government is doing enough to protect “consumers from being taken advantage of” by financial advisers
  • 84 percent of American investors agree that “financial advisers should be regulated by the federal government to protect investors and build confidence in financial services”

“These results should serve as another wake-up call for the SEC, Congress and the Administration to protect American investors who continue to be vulnerable to fraud and abuse while key Dodd-Frank investor-protection reforms are mired in rulemakings or need follow-up congressional action,” said the Coalition, which is comprised of Certified Financial Planner Board of Standards, Inc., the Financial Planning Association and the National Association of Personal Financial Advisors. The Coalition also restated its support for White’s nomination, noting that they look forward to working with her in the near future.

One of the Coalition’s highest priorities — extending the fiduciary standard of conduct to broker-dealers who provide investment advice to retail clients — received strong support from American investors.

Ninety-three percent (93%) of respondents said that they agree with the statement that financial advisers providing advice “should put your interests ahead of theirs and should have to tell you upfront about any conflicts of interest that potentially could influence that advice.”

“The adoption of the fiduciary standard for broker-dealers will help to restore and strengthen public trust in financial advisers – both investment advisers and broker-dealers – offering long-term benefits to consumers and to our economy,” said the Coalition, noting that it welcomes the opportunity to offer its views in response to the SEC’s recent request for information about costs and benefits related to the fiduciary standard rulemaking process.

The Coalition also strongly advocates for a properly funded SEC to enhance its oversight of investment advisers and to ensure that examinations are conducted at least once every four years, as opposed to the current frequency of once every 11 years. The current level of examinations, which is due to a resource gap at the SEC, is bad for investors and for advisers.

To pay for increased examinations, the Coalition is advocating for Congress to authorize the SEC to collect user fees from SEC-regulated investment advisers. This targeted, efficient and effective solution will provide the SEC with the additional resources it needs to do its job. It comes at no additional cost to taxpayers and is roundly supported by consumer and industry groups, with investment advisers also saying they are willing to pay for the increased oversight. A Boston Consulting Group study commissioned by the Coalition and others in 2011 found user fees to be significantly less costly than a self-regulatory organization (SRO) operated by FINRA and the preferred solution by more than 80 percent of investment advisers.

“American investors remain at risk, as policymakers continue to debate the merits and implementation of these important investor protection provisions in the Dodd-Frank Act,” the Coalition concluded. “We strongly urge the new Chairman of the SEC to champion extending the fiduciary standard and support the user fee option as a way to fund increased oversight of investment advisers. ”

Survey Methodology

Survey conducted by KRC Research on behalf of the Financial Planning Coalition from March 3-6, 2013 via an online inquiry of 1,030 individuals in the U.S. (male and female over the age of 18). Margin of error is ±3.1 percentage points at the 95% confidence level.