One-Man Think Tank: SEC courage likely to be tested in coming months

I am personally most pleased with the substantial effort put into the Study by the SEC’s staff. The SEC Staff’s Study of fiduciary duties of investment advisers and their potential application to broker-dealers will serve as a substantial resource not only during the rule-making process, but also for Chief Compliance Officers of RIA firms and dual registrant firms everywhere. This Study is likely to be referenced for decades to come.

I encourage the SEC to undertake the process of further study and rulemaking in an expeditious manner. As Commissioners Casey and Parades suggested, academic research into the benefits afforded consumers from various business models could be undertaken. The development of professional rules of conduct, a time-consuming process, can immediately commence. For appropriate areas of rulemaking, the SEC could even form a “Task Force” to work with SEC staff in the development of more specific fiduciary standards of conduct which will serve to guide those providing investment advice to retail and perhaps other consumers.

There are 10 or more major areas identified in the Study which the SEC likely to seek input from the public. I encourage the SEC, industry organizations, and the academic community to work closely together to meet the work challenges which lie ahead, in order that rules in this area can be enacted within the next 12-18 months.

If properly implemented, “uniform fiduciary standard” adopted and applied both to investment advisers and to certain activities of broker-dealer firms, will enable consumers to discern when their financial and investment adviser is truly acting in their best interests. Hence, this Study may be the most significant “win” for consumers of investment advisory services since the enactment of the Investment Advisers Act of 1940.

However, the path to secure the much-needed protections for consumers will not be easy. Significant economic interests, such as those from the insurance industry, will likely oppose the application of proper fiduciary standards at every turn. The courage already seen in the SEC Staff, in the producting of this Study, will again be tested. The SEC will require the support of many professional groups and consumer groups, as well as that of the media and general public, to overcome the ferocious attacks which are certain to follow from those firms and organizations who seek to weaken the fiduciary standard of conduct.

More than at any time in recent memory, I am impressed by the SEC and its current initiative, through this Study and the upcoming rule-making process, to secure greater protections for our fellow Americans. More than ever before, I foresee a future in which consumers’ trust of those providing investment advice will not, as so often exists today, be a trust betrayed.

Ron A. Rhoades, JD, CFP® serves as Chief Compliance Officer and Director of Research for Joseph Capital Management, LLC, a registered investment adviser with offices in New York, North Carolina, Georgia and Florida. This column represents his views only, and not necessarily the views of any organization to which he may be affiliated.