The Dodd-Frank Act directed the SEC to study whether broker-dealers should be held to a fiduciary duty standard rather than the lower "suitability" standard. Advocates for the fiduciary standard claim that customers are often under the misconception that they are dealing with a professional obligated to put their interests first. Many broker-dealers have argued that the creation of the new standard would increase compliance and liability costs and could end up hurting lower and middle income investors.
Broker-dealers opposed to the new standard claim that the higher costs may prompt brokers to drop commission based accounts altogether in favor of more lucrative accounts that charge a WRAP fee, leaving lower and middle income investors without anyone to turn to for investment advice. Critics also claim that a universal fiduciary standard could limit the range of products offered to customers.
The concerns over a universal standard have caught the attention of the SEC. Last March, the SEC issued a public request for comment, including an assumption that a fiduciary duty would permit broker-dealers to continue to receive commissions and the mere offering of a limited range of products wouldn't in and of itself be a violation of the fiduciary standard. At least one SEC commissioner has publicly indicated that, while the issue remains open, the SEC is concerned that a universal standard would limit options for customers. Further complicating the issue for broker-dealers and customers is that the Labor Department is working on a separate proposal that could establish a fiduciary standard for brokers who give advice on retirement investing.
The SEC is expected to issue a proposed rule by the end of the year. While it seems certain that new standards are coming, the SEC is leaning against issuing a universal standard. Nevertheless, the new SEC and Labor Department rules regarding the standard may end up further complicating the issue for customers and broker-dealers.
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