What do you think of our site upgrade?
Hosting an industry conference? Ask us about including it in this ticker?

Has SEC Unfairly Rigged Its Fiduciary Questionnaire?

April 23
00:06 2013

Three highly regarded industry thought leaders attacked the SEC’s recently published Fiduciary Questionnaire during a keynote presentation before 600 attendees at the fi360 Annual Conference in San Diego last week. On March 1, 642559_89524063_studying_ahead_stock_xchng_royalty_free_3002013, the SEC issued a release entitled “Duties of Brokers, Dealers, and Investment Advisers” (Release No. 34-69013; IA-3558; File No. 4-606) in an unprecedented attempt to obtain public comment prior to the release of a specific rule (in this case relating to the adoption of a Uniform Fiduciary Standard). According to the experts on the fi360 panel, this effort had #SECFAIL written all over it from the get-to.

Ron Rhoades, who is Chair of the Committee for the Fiduciary Standard (as well as Program Chair for the Financial Planning Program at Alfred State College in Western New York) says his group is “struggling” with the SEC questions. “Some of the questions are not even good,” he says. Rhoades told the audience “We’ll ask our members to write the SEC, the DOL and Congress.” He then asked fi360 CEO Blaine Aikin if his group plans a similar call-for-action prior to the SEC’s July deadline.

“Yes, fi360 will respond,” said Aikin, “but not in a way the SEC expects.”

Aikin felt the fact the SEC is asking for comments before issuing a proposed rule is a disservice. Furthermore, he suggests – whether intentionally or not – the questionnaire itself might be unfairly biased. “Many of the questions the SEC is asking are inappropriate or make assumptions contrary to the core principles of fiduciary,” says the fi360 CEO. “The SEC is asking how to accommodate the industry by compromising on two centuries of common law rules. This question is backwards. It should be ‘how do we accommodate the investor?’”

Rhoades agreed, saying it’s as if the SEC is asking “how do we constrain fiduciary” instead of the other way around.

For example, here’s a portion of one of the many questions in the SEC’s 72 page manifesto, (which reads like a final exam for a graduate level course):

In particular, describe the cost to broker-dealers and investment advisers in terms of dollars and time spent from providing these activities to retail customers under the uniform fiduciary standard and each of the alternative approaches.

Skip Schweiss, Managing Director of Advisor Advocacy & Industry Affairs at TD Ameritrade, said “It will be very, very, difficult for folks to respond directly to the questions posed by the SEC.” Schweiss thought the basic direction taken by the SEC was incorrect. “Fundamentally, this shouldn’t be about costs,” he said, “it should be about the philosophy of putting the client first.”

No doubt the theoretical nature of the SEC’s self-fulfilling questions have perplexed many commentators. Aikin says, “We’ll ask our members to respond by questioning some of the underlying questions. It’s not productive for organizations to entertain hypothetical rules that fail at the principle level.” In particular he feels the SEC’s over-reliance on quantitative data may skew the analysis away from the most important issue. “It’s tough to quantify the value of objective advice,” says Aikin. “We routinely underemphasize hard to quantity benefits and overemphasize easy to quantify costs. But the fundamental question remains ‘what is the price of your principles?’ In either case, one should always quantify the costs and benefits from the investor’s perspective, not the industry’s.”

Schweiss summed up the feelings of many fi360 Annual Conference attendees when he offered this conclusion about the Uniform Fiduciary Standard: “It’s just the right thing to do.”

Interested in learning more about this and other important topics confronting 401k fiduciaries? Explore Mr. Carosa’s new book 401k Fiduciary Solutions and discover how to solve those hidden traps that often pop up in 401k plans. The book also contains a series of chapters on this subject, including how to create an investment policy statement that defines a set of menu options consistent with the “one portfolio” concept (as well as leaving room for those few remaining do-it-yourselfers).

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Michael Prus
    Michael Prus April 24, 09:19


    Excellent insights as always. Thank you.


  2. Barbara Roper
    Barbara Roper June 05, 08:52

    While we share many of these concerns about the direction of the SEC’s request for information, it is important to recognize that the agency’s focus on quantifiable costs is the direct result of forces beyond the agency’s control. The courts set a very high bar for the economic analysis the agency must perform to justify its rules, a standard that has tripped the agency up on in several recent cases. Given that elements of the broker-dealer community might challenge a rule (particularly a strong rule) and that the two Republican commissioners at the time the SEC issued its Section 913 study dissented on the grounds that the Commission had not proven the need for rulemaking or adequately assessed the potential economic impact, the SEC would be remiss to try to proceed with rulemaking without first conducting additional economic analysis.

    Unfortunately, as this request for information makes clear, when industry is able to wield this threat of legal challenge, it generally doesn’t even have to go to court to achieve its goal of weakening regulation. The SEC does the industry lobbyists’ work for them by adopting a weak and ineffective regulatory approach.

    The question is whether this process can still be turned around to produce a strong fiduciary rule. For that to happen, we need to seize this opportunity to provide data that shows that a fiduciary duty for brokers is both needed and workable, or that an alternative regulatory approach exists that could deliver the same benefits. Any data that advisers can provide to show that brokers’ lack of a fiduciary standard does real harm to investors (as distinct from harm caused by brokers who violate the suitability standard) and that it is possible to provide fiduciary services in an affordable fashion would advance that goal. At the same time, fiduciary advocates must also push back against an interpretation of fiduciary duty in the SEC request that lacks key elements of an appropriate standard.

    Tempting as it is to attack the process, that would be a better use of this opportunity.

  3. Christopher Carosa, CTFA
    Christopher Carosa, CTFA Author June 05, 10:33

    Barbara: Excellent comment! Thanks!

  4. Stephen Winks
    Stephen Winks June 05, 16:35

    Fiduciaries win the cost consideration hands down.

    Brokers not only do not render advice by their own admission but they are not accountable for or have any ongoing responsibilities for their recommendations. But because brokers use very expensive packaged products or expensive advice products which by definition can not be client specidic or characterized as individualized advice–advisors can easily deliver expert individualized advice for which they are accountable and responsible at a fraction of the cost of a packaged product.

    To counter the FINRA ans SIFMA premise that advisors are not examined enough to assure the consumer best interests are protected, how does the industry reconcile that under thw auspices of FINRA and the SIFMA that it is a violation of internal compliance protocol for brokers to acknowledge they render advice or owe their clients an ongoing fiduciary duty of care to act in the consumer’s best interest. Looks like the brokerage industry interests are being put ahead of the consumer’s best interest.


Only registered users can comment. Login is sponsored by…

Order Your From Cradle to Retirement book today!

Vote in our Poll


The materials at this web site are maintained for the sole purpose of providing general information about fiduciary law, tax accounting and investments and do not under any circumstances constitute legal, accounting or investment advice. You should not act or refrain from acting based on these materials without first obtaining the advice of an appropriate professional. Please carefully read the terms and conditions for using this site. This website contains links to third-party websites. We are not responsible for, and make no representations or endorsements with respect to, third-party websites, or with respect to any information, products or services that may be provided by or through such websites.