SEC To Accelerate Uniform Fiduciary Push
March 10, 2014 by Kenneth Corbin
ARLINGTON, VA. – Even as the SEC has been focusing on implementation of the Volcker Rule and the JOBS Act, the head of the commission’s Division of Investment Management is reminding advisors that two items of keen interest to the segment remain very much on the agenda.
The SEC is committed to moving forward on a uniform fiduciary standard for advisors and broker-dealers and expects to finalize money market reforms by the end of the year, Norman Champ told advisors during remarks at theInvestment Adviser Association’s compliance summit here last week.
Champ said that SEC ChairmanMary Jo White, who herself was a late scratch to speak at the conference, intends to accelerate work on harmonizing the disparate standards of care for advisors, who are held to a fiduciary duty to put clients’ interests ahead of their own, and brokers, who are required to make recommendations deemed suitable to their clients, which is generally considered a laxer standard.
‘INTENSIFY’ CONSIDERATION
“Chair White recently indicated the commission would intensify its consideration of these issues [toward] enhancing investor protections,” Champ said.
Acting under a requirement of the Dodd-Frank Act, the SEC has already conducted a study evaluating the feasibility for aligning regulations of advisors and brokers under a single fiduciary standard. Last year, the commission put out a call to industry and other interested parties to submit data on the potential effects of the proposal. Then in November, an SEC advisory committee unanimously recommended the commission move forward with the uniform standard.
Still, even with momentum building within the commission, Champ isn’t setting a time table for when the SEC will move forward.
“If I’ve learned anything in the last few years, it’s that rulemakings can be extremely episodic. Sometimes a rule looks like it’s going somewhere and then it’s not. Something else happens,” he said.
MONEY MARKET REFORMS
Farther along are the proposed reforms to money market funds, an initiative the commission began in response to the 2008 collapse of theReserve Primary Fund, a destabilizing event that contributed to the global credit freeze amid the broader financial meltdown. Champ affirmed that theSEC is aiming to finalize its reforms by the end of the year.
After a long and winding road, marked by intense lobbying by the fund industry, the SEC put a pair of proposals on the table last June that it said could be adopted individually or in combination. One option would require prime institutional money market funds to float their net asset value, rather than trading at a static $1 share price. Alternatively, the commission has suggested a “fees and gates” proposal, under which share prices would hold steady, but in times of stress funds would impose a liquidity fee on redemptions and then temporarily suspend withdrawals.
Government money market funds would be exempted from both proposals. The floating NAV option would also exempt retail funds.
INCREASED SCRUTINY
In addition to providing the update on specific initiatives, Champ spoke of the SEC’s intention to increase its scrutiny of the industry, echoing a theme voiced by several commission officials at the IAA conference.
“Compliance policies and procedures must be specifically tailored to your firm’s advisory business, and a few recent enforcement cases unfortunately make this point,” Champ said.
In one case dating to last March, the SEC took action against two advisors alleged to have misled investors about the valuation and performance of a private equity fund, citing inaccuracies in the written descriptions of the fund. In a more recent case, the commission tagged an advisor for false and misleading advertisements in violation of the advertising rule.
“It’s crucial that policies and procedures be reviewed and updated as your business changes, as regulations change — which is happening a lot right now — and as new guidance is issued,” Champ said. “Compliance policies and procedures should evolve and grow with your businesses.”
In another recent case, the SEC barred a portfolio manager at an advisory firm from the securities industry for five years for misleading the firm’s chief compliance officer about personal trades he had made but failed to report.
“That case, we think, should send a clear message to the industry that professionals have an obligation to comply with compliance policies, and the commission will not tolerate interference with CCOs who are enforcing those policies,” Champ said.
