Wednesday, September 28, 2016

NASAA Releases Its 2016 Enforcement Report



The North American Securities Administrators Association (NASAA) recently released its Enforcement Report for 2016, an annual publication providing a general overview of the activities of the state securities agencies responsible for the protection of investors who purchase investment advice or securities. Admittedly, the information undercounts many statistics due to differences in fiscal year reporting and a lack of response or underreporting for each survey question posed. However, trends in the 52 U.S. jurisdictions are still apparent in the report.[i]

For the first time since NASAA began tracking enforcement statistics, more registered than unregistered individuals and firms were subject to respondent status.[ii] During 2015, state securities regulators conducted 5,000 investigations and brought 2,000 enforcement actions against 2,700 respondents, which often involved more than one individual or company.[iii]

Sanctions imposed upon those who were found in violation of securities law ranged from incarceration to monetary relief and bans on trading. The year witnessed a combined 849 years of imprisonment, 410 years of probation, and 23 years of deferred prosecution, as well as $538m paid in restitution and $238m in fines/penalties.[iv] In addition to criminal and monetary repercussions, revocation and disbarment from the industry occurred for more than 250 individuals, while another 475 licenses/registrations were denied, suspended or conditioned.[v]   

The five most common violations prompting these actions were, in order of frequency: Ponzi Schemes, Real Estate Investment Program Fraud, Oil & Gas Investment Program Fraud, Internet Fraud, and Affinity Fraud.[vi]

The NASAA report found that Ponzi scheme victims were often targeted through the internet or for identifiable attributes, such as race or religion. The report also found that vulnerable seniors were disproportionately victims; jurisdictions that reported on seniors found one-third of all investigations related to their victimization.[vii]

Prison terms have become more common for those conducting such schemes, such as Derek Nelson, found guilty of selling about $37m in promissory notes for property purchases that never took place. As a consequence, Mr. Nelson received 19 years in prison.[viii]

Real estate and oil and gas investment fraud was also a major concern for reporting NASAA members. Some states, such as Colorado, have sought judicial remedy and have secured investor protection by winning the right to have oil and gas interests subject to securities law.[ix]

The report clearly states that all fraud has been made easier to accomplish due to the internet, where only basic computer skills allow an individual from anywhere in the world to “enter” the homes of investors. Scott Campbell was sentenced to 20 years in prison for conducting a Ponzi scheme over the internet from Florida. Alabama garnered 18 convictions in an international bank scheme conducted through Craigslist.[x] Affinity frauds, in which an individual purports to be a member of a certain group, are much easier to accomplish given the anonymity of the internet.

The industry’s heightened attention to elder abuse has not shielded those responsible for supervision or oversight. Wells Fargo Advisors, LLC and Fulcrum Securities, LLC were ordered to pay $470,000 to investors for their failure to oversee Christopher Cunningham of Virginia, who defrauded elderly clients in a Ponzi scheme. For his part, Cunningham was disbarred and sentenced to 57 months in federal prison.[xi]

Attorneys are not immune to abusing their positions in order to perpetrate fraud. According to the report, Michael Kwasnik, an estate planning attorney, used his position of trust to perpetrate a $10m Ponzi scheme against elderly victims in New Jersey. The Court found that he had taken advantage of the attorney-client trust. Earlier in the year, Kwasnik also pled guilty to securities fraud in Delaware, utilizing the client trust account of his law firm to commingle monies from both frauds. Though Mr. Kwasnik received no jail time, he was ordered to repay millions in lost monies, amongst other judgments.[xii]

What may be the single worst case of elder victimization presented in NASAA’s annual report was perpetrated by Sean Meadows, owner of a financial planning and asset management firm, Meadows Financial Group LLC (MFG). Meadows perpetrated a $13m Ponzi scheme against 100 individuals, some disabled, poor, or terminally ill. He took the life savings of most, luring them into draining their retirement accounts. Many lost their homes, ability to care for their families, and even pay for cancer treatments.[xiii]

Meadows convinced his victims to pull money out of tax-deferred accounts to invest with MFG, promising these transactions would be tax-free rollovers. He then convinced these same individuals to allow him to do their taxes, in order to cover up the scheme. He either filed fraudulent tax returns or filed nothing at all. As a result, in addition to losing retirement savings, many incurred significant tax liabilities. For his crimes, Meadows received 25 years in prison.[xiv]

As the NASAA report makes clear, positive steps are being taken by its members to address the fraudulent and criminal activities of some individuals and firms. Laura Posner, NASAA Enforcement Section Chair, believes enhanced regulatory scrutiny is responsible for the increase in action documented by the report.[xv] However, it is still necessary to be on alert for promises that seem too good to be true. If you feel you may have fallen victim, please seek consultation from an attorney immediately.   


[i] North American Securities Administrators Association (2016) NASAA 2016 Enforcement Report (Based on 2015 Data) [Electronic Format]. Retrieved from: http://nasaa.cdn.s3.amazonaws.com/wp-content/uploads/2016/09/2016-Enforcement-Report-Based-on-2015-Data_online.pdf. (pp. 11)
[ii] Ibid. pp. 5
[iii] Ibid. pp. 2
[iv] Ibid. pp. 3
[v] Ibid. pp. 4
[vi] Ibid. pp. 4
[vii] Ibid. pp. 5
[viii] Ibid. pp. 6-7
[ix] Ibid. pp. 4-5
[x] Ibid. pp. 7
[xi] Ibid. pp. 7
[xii] Ibid. pp. 9
[xiii] Ibid. pp. 9-10
[xiv]Ibid. pp.  9-10
[xv] NASAA Releases Annual Enforcement Report (9.13.2006) [Electronic Format]. Retrieved from: http:nasaa.org/40256/nasaa-releases-annual-enforcement-report-2

Wednesday, September 21, 2016

Financial Advisors Expunging Baseless Customer Complaints in State Court

The Internet is awash with articles about “bad brokers” with clean U-4s, and “rouge brokers” obtaining expungements of valid customer complaints.  Indeed, studies have been published ostensibly demonstrating that state regulators poses more valuable information on their system than what appears on FINRA’s public Broker-Check data base.  In sum, there is a consensus that too many complaints are being expunged.  But whether that consensus is based on fact is subject to debate.

Regardless, FINRA has repeatedly responded to the hue and cry by making it increasingly difficult for a financial adviser to obtain an expungement of a customer complaint published on his or her professional record.  But amidst all of this anguish and gnashing of teeth, a politically incorrect truth has been left in the shadows.  I feel compelled to share it with you.  Here it is:  some customer complaints are baseless.  There; I said it.

Another often-overlooked fact is that FA’s are able to go straight to a court of law, rather than a FINRA arbitration, to obtain an expungement.  Almost exactly one year ago, FINRA issued new guidance to its arbitrators raising ever higher the procedural bars for a panel to recommend expungement[1].  Should a FA surmount the procedural hurdles and slim avenues to success, the FA still has to go to court to get the Award confirmed.  And, in that state court action, he or she still needs to name FINRA as a party so that they can show up and oppose the FINRA arbitrator’s recommendation.

But FINRA Rule 2080 actually reads as follows:

2080. Obtaining an Order of Expungement of Customer Dispute Information from the Central Registration Depository (CRD) System
(a) Members or associated persons seeking to expunge information from the CRD system arising from disputes with customers must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.
(b) Members or associated persons petitioning a court for expungement relief or seeking judicial confirmation of an arbitration award containing expungement relief must name FINRA as an additional party and serve FINRA with all appropriate documents unless this requirement is waived pursuant to subparagraph (1) or (2) below.
(1) Upon request, FINRA may waive the obligation to name FINRA as a party if FINRA determines that the expungement relief is based on affirmative judicial or arbitral findings that:
(A) the claim, allegation or information is factually impossible or clearly erroneous;
(B) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
(C) the claim, allegation or information is false.
(2) If the expungement relief is based on judicial or arbitral findings other than those described above, FINRA, in its sole discretion and under extraordinary circumstances, also may waive the obligation to name FINRA as a party if it determines that:
(A) the expungement relief and accompanying findings on which it is based are meritorious; and
(B) the expungement would have no material adverse effect on investor protection, the integrity of the CRD system or regulatory requirements.
(c) For purposes of this Rule, the terms "sales practice violation," "investment-related," and "involved" shall have the meanings set forth in the Uniform Application for Securities Industry Registration or Transfer ("Form U4") in effect at the time of issuance of the subject expungement order.

It seems as if very few have read the actual rule.  I recently read an attorney blog that makes no mention of the direct-to-court avenue whatsoever!  Well, our attorneys are very familiar with both the state court and arbitration options and procedures. 
   
There is actually some case law out there on a financial adviser’s right to go to court to seek an expungement.  In Lickiss v. FINRA, 208 Cal.App. 4th 1125 (2012), the California Court of Appeals reversed a lower court’s dismissal of the FA’s petition.  In fact, it held that the trial court abused its discretion by limiting itself to the criteria set forth in Rule 2080(b), rather than employing the court’s broad equitable power and discretion.  The Court of Appeals stated in part:

            FINRA has established BrokerCheck, an online application through which the public may obtain information on the background, business practices and conduct of FINRA member firms and their representatives.   Through BrokerCheck, FINRA releases to the public certain information maintained on the CRD, thereby enabling investors to make informed decisions about individuals and firms with which they may wish to conduct business.   This data includes historic customer complaints and information about investment-related, consumer-initiated litigation or arbitration….

            The issues surrounding Lickiss's sale of CET stock occurred more than 20 years ago, and the one regulatory matter against him resolved 15 years ago in 1997.   Since then, his record has been clear, yet Lickiss attested that he suffers professional and financial hardship relating to the prior sale of CET stock because current and potential clients increasingly use the Internet to obtain his BrokerCheck history.

Lickiss petitioned for expungement of his CRD records, asserting that the superior court had jurisdiction “pursuant to (1) FINRA Rule 2080(a);  [and] (2) the Court's equitable and inherent powers to effectuate expungements.”

FINRA removed the action to federal court.   Upon Lickiss's motion, the federal district court remanded the matter back to the state superior court, ruling that it did not have subject matter jurisdiction over the case because there is no statute, rule or regulation imposing a duty on FINRA to expunge….

Had Lickiss merely petitioned the court for expungement relief under rule 2080, without also invoking the court's equitable powers, that might be the end of the matter.   However, Lickiss explicitly invoked those powers….

Equity aims to do right and accomplish justice.  (Hirshfield v. Schwartz (2001) 91 Cal.App.4th 749, 770.)… 

The equitable powers of a court are not curbed by rigid rules of law, and thus wide play is reserved to the court's conscience in formulating its decrees… 

This basic principle of equity jurisprudence means that in any given context in which the court is prevailed upon to exercise its equitable powers, it should weigh the competing equities bearing on the issue at hand and then grant or deny relief based on the overall balance of these equities…

The choice of a very narrow, rigid legal rule to assess the legal sufficiency of Lickiss's petition—a choice that closed off all avenues to the court's conscience in formulating a decree and disregarded basic principles of equity—was nothing short of an end run around equity…

This is not, as FINRA contends, merely a request for a remedy.   Rule 2080(a) essentially recognizes the right of members and associated persons to seek expungement of information from the CRD system by obtaining an order from a court of competent jurisdiction directing such expungement. 

See also Lickiss v. FINRA, Fed.Sec. L. Rep. P.96, 345 (2011). Compare Updegrove v. Betancourt, 2016 WL 3442762 (2016).
  
If you are a FA who has a U-4 scarred by one or more clearly erroneous customer complaints, we would be happy to evaluate your prospects for success in seeking an expungement in state court or arbitration.  Your chances of erasing an unfair or unfounded complaint in a court of law at a reasonable cost might be better than you think.

Friday, July 29, 2016

A SHOT ACROSS THE BOW OF ROBO-ADVISERS

The Massachusetts Securities Division – one of the most active and sophisticated in the nation – recently issued a Policy Statement “to provide its state-registered investment advisers who establish concurrent or sub-advisory relationships with third-party robo-advisers with guidelines on how to best comply with the Massachusetts Uniform Securities act and meet the fiduciary duties owed to their clients.” That may be the longest sentence I have ever written.

So let’s start with the basics: what is a robo-adviser? Generally speaking, a robo-adviser is an online wealth management service that provides automated algorithm-based portfolio advice. Of course, a traditional adviser may also utilize software based data but they typically employ that data in the context of more personalized advice and wealth management or retirement planning. A few examples of robo-advisers in the marketplace today are Covestor, Market Riders, Asset Builder and Flex Score.

The problem, at least as I see it, is robo-advisers dressed up as fiduciaries. Some, and in particular one ubiquitous SEC registered RIA, actually promotes itself as a premium fiduciary with unparalleled individualized portfolio construction. In my opinion, it is not. Not even close. Unfortunately, the SEC has failed to take action against such cynical charades, but the Massachusetts Securities Division is doing what it can do within its jurisdictional constraints.

According to the new Massachusetts policy, any investment adviser registered pursuant to the Massachusetts Uniform Securities act must:

  • Must clearly identify any third-party robo-advisers with which it contracts; must use phraseology that clearly indicates that the third party is a robo-adviser or otherwise utilizes algorithms or equivalent methods in the course of providing automated portfolio management services; and must detail the services provided by each third-party robo-adivser;
  • If applicable, must inform clients that investment advisory services could be obtained directly from the third-party robo-adviser;
  • Must detail the ways in which it provides value to the client for its fees, in light of the fiduciary duty it owes to the client;
  • Must detail the services that it cannot provide to the client, in light of the fiduciary duty it owes to the client;
  • If applicable, must clarify that the third-party robo-adviser may limit the investment products available to the client (such as exchange-traded funds, for example); and
  • Must use unique, distinguishable, and plain-English language to describe its and the third-party robo-adviser’s services, whether drafted by the state-registered investment adviser or by a compliance consultant.

If you want to review the flesh on these bones, click here. Now, if only the SEC, California, Missouri, Florida and… would follow Lantagne’s lead.

Tuesday, July 19, 2016

84 Year Old Takes on Edward Jones for Unauthorized Trading

An elderly St. Louis man has filed a FINRA arbitration claim against Edward Jones and one of its financial advisers. The elderly client alleges that the financial adviser over-rode his objections to liquidating over a thousand shares of Cigna. Those shares were held in the client’s 401(k) before rolling over to an Edward Jones IRA. The financial adviser informed the client that Edward Jones would not permit him to retain such a high concentration of one share in the IRA once the rollover was completed. According to the client, he didn’t give a damn because he had dedicated his life to his employer, which ultimately became Cigna.

As bad luck would have it, the elderly gentleman had a good thing going with his Cigna shares. But the young FA liquidated almost all of them, using the proceeds to purchase favored mediocre-performing mutual funds. The commissions must have been smashing but the retirement account missed out on approximately $900,000 in appreciation in the Cigna shares.

According to the Statement of Claim, which contains allegations that still must be proven, the FA’s murky self-serving account notes do not jive with what the FA admitted to the elderly gentleman’s wife and daughter. Notably, there isn’t a single piece of paper signed or initialed by the client which evidences his consent to the liquidation of his beloved shares. Wouldn’t you think that is something a broker-dealer would want to obtain as a matter of course? Who knows - maybe you can use discretion in a non-discretionary account, as long as you stick a trade confirmation in the mail. But what if you are a broker-dealer that is willing to change trade confirmations after the fact? Food for thought. And once again folks – these are mere allegations until proven to the satisfaction of a Panel.

For more information regarding unauthorized trading, see Douglas Schulz's article "Unauthorized Trading, Time and Price Discretion & the Mismarking of Order Tickets:" http://www.jurispro.com/files/documents/doc-1066206599-article-2051.pdf

Friday, July 8, 2016

Broker-Dealers Using Compliance as a WMD

There seems to be a new trend in town: broker-dealers unleashing compliance or “reputation managers” upon rich-target independent branch operators.  Perhaps it isn’t really that new of a trend.  Indeed, after handling several such matters over the years, I am able to at least describe the modus operandi for these “internal raids”.

First, the broker-dealer’s “business side” identifies a branch with a substantial AUM.  As it stands, the broker-dealer is sharing in a small fraction of the revenue the branch is generating.  Coupled with an external factor, such as a desire to satiate regulators or even a mere personality conflict, executives at the highest level of the organization decide to raid the branch.  But they do it under the pretense of a newly born compliance concern, and they respond to old concerns with an utterly disproportionate sanction – termination without notice.  No Letter of Caution or fine, of course, as this would merely give the target rich financial adviser the opportunity to escape the WMD.

Upon termination the broker-dealer is oddly well prepared to immediately file a devastating U-5, send a highly prejudicial warning/solicitation letter to the adviser’s clients, and/or offer immediate home-office supervision or new OSJ opportunities to all of the branch’s financial advisers.  The impact upon the financial adviser is massive, as he is unable to become registered with a new broker-dealer until a na├»ve state regulator slowly plods through its investigation of the opportunistic and frequently defamatory U-5 disclosure.  The raiding broker-dealer will be slow but “cooperative” in responding to the regulator’s requests for documents.  In terms of private legal counsel, the financial adviser’s source of revenue will dry up at the very moment he or she needs to retain an army of lawyers.  The non-terminated financial advisers will cherry-pick their old boss’ clients.  (They will be ripe for the picking after the nasty letter they received about their now-terminated broker.)  By the time the adviser is registered with a new broker-dealer, his or her book is all but gone.

I have previously written a blog about the causes of action available to a financial adviser who has been raided in such a fashion.  But until FINRA panels start fully compensating the victims of these internal raiding schemes and awarding substantial punitive damage awards – the bombings will continue.  Moreover, state regulators need to issue provisional registration states to such financial advisors while they conduct their investigation.  Food for thought. 

See alsohttp://securitiesandinvestmentblog.blogspot.com/2015/12/how-to-terminate-discredit-and.html

Wednesday, June 22, 2016

Ignore At Your Own Peril: “Training Fees” Provisions in Financial Industry Employment Contracts

It has long been the practice of many broker-dealers, wire houses, and other financial firms to put provisions in employee contracts allowing them to recover so-called “training fees” after a broker or financial advisor (“FA”) leaves.  Precisely how these firms decide the value of the training they provide remains a mystery, but they tend to reach nice round numbers, like $25,000, $65,000, or $75,000.  Over the years, these provisions have given enough heartburn to brokers and FAs to keep Pepto Bismol, Tums, and whoever else you can think of, in business in perpetuity.  Most of the time, training fees provisions apply during the earlier stages of a broker or FA’s career.  In other words: the time when they cannot afford to repay them.  Accordingly, the enforceability of such provisions has been subject to much speculation, and, unfortunately, some wishful-thinking.

Some believe that financial firms will never follow up on their demands for payments.  Some think that a simple counterclaim will be enough to scare a former employer away.  Some find the idea of paying back training fees so patently unfair that they refuse to entertain the notion at all.

Whatever one may think about the fairness of “training fees” provisions, the fact remains that the decision of whether to take legal action to enforce them lies with the employer.  Further, although perhaps not in every case, financial firms are doing it, and winning. 
           
Take, for example, Wells Fargo, which, in 2012, obtained an Award against one of its former employees for $25,000 in training fees.  See Wells Fargo Advisors, LLC v. Shawn Orin Higley, FINRA Case No. 11-03197.  To add insult to injury, the broker was ordered also to cover Wells’ filing fee.  Id.  The very next year, Wells got another Award, this one worth $37,000, against another former employee.  See Wells Fargo Advisors, LLC v. Austin Jambor, FINRA Case No. 13-02681. 

In 2014, Merrill Lynch obtained an award of $20,000 in training costs.  See Merrill Lynch Pierce Fenner & Smith Incorporated v. Jason B. Morgan, FINRA Case No. 13-01809.
Showing a long-term commitment to these types of actions, in 1997 Merrill received an award of $19,000 in training costs, plus an additional $18,908 in attorneys’ fees, and $2,912 in costs against a former broker.[1]  See David A. Grasch v. Merrill Lynch Pierce Fenner & Smith Inc., NASD Case No. 97-01469. 

In 2007, Edward Jones pursued arbitration and won an award against a former employee over only $9,375.00 in training fees.[2]  See Edward Jones & Co., L.P. v. James A. Valis, NASD Case No. 06-02903.  It did the same thing the next year.  See Edward D. Jones & Co., L.P. v. Giovani Difiore, FINRA Case No. 07-02532.

We could go on listing such cases for quite a while.  The point, however, is that “training fee” agreements cannot be taken lightly.  But, it’s not all “doom and gloom.”  Financial firms do not always win these cases, and certainly do not always recover the full amount they ask for.  See RBC Capital Markets, LLC, FINRA Arbitration 12-02576.  (Employer’s claim for training costs, among others, was denied.)  See also Wells Fargo Advisors, LLC vs. Aaron Hansz, FINRA Case No. 10-04938.  (Wells recovered only $22,000, including attorneys’ fees, of the $75,000 in training costs and $21,221.25 in attorneys’ fees it sought.)  Among other available defenses, the training fees provisions in these contracts often look more like penalties (which are generally unenforceable) than liquidated damages provisions (which are permissible).  Some of them also may be subject to arguments that they are unenforceable by reason of being unconscionable.  Nonetheless, the balance of the cases referenced above shows that financial firms are winning enough of these claims to warrant taking them very seriously. 

If you receive a demand from a former employer for the training costs that you promised to repay in your employment contract, ignoring it could have dire consequences.[3]  Your best bet is to contact competent legal counsel that is knowledgeable in this area, and has experience in front of FINRA.  In many cases, financial firms may be willing to settle their claims for a fraction of the fee listed in the contract.  As time goes on, however, and their attorneys generate fees through repeated attempts to collect, these firms often become less open to the idea.  Obviously, if settlement isn’t on the horizon, and you’re ready to go to the mat to defend yourself, you’ll need attorneys with arbitration experience.

By retaining counsel to resolve your matter early, you may be able to save yourself substantial time, money, and heartburn.  If an early resolution isn’t possible, you still want to make sure that you’ve got the right team protecting you.  Put down the Pepto and pick up the phone.  Your gut will thank you.




[1] In the interest of fairness, however, it should be noted that Merrill’s award came from counterclaims it filed in response to an arbitration initiated by its former broker.
[2] Jones was, however, also awarded partial payment of arbitration costs.
[3] Having an unsatisfied Award outstanding can have licensing implications.  If the Award is converted into a judgment, you now have an event that must be reported on your U-4, and will be available for potential clients to see on brokercheck.org.

Monday, May 23, 2016

DOL Fiduciary Rule P II: The SEC Story


While the previous post discussed the Department of Labor’s (DOL) fiduciary rule, it is not the only government agency tackling the issue. In 2010, President Obama signed into law the Dodd-Frank Act, which authorized the Securities and Exchange Commission (SEC) to create its own uniform standard of care for financial advisors. To aid in this endeavor, it also authorized the creation of an Investor Advisory Committee (IAC) whose purpose was to submit recommendations to the SEC regarding, amongst other things, the regulation of securities products and the protection of investor interests.[i] In November 2013, the IAC issued a report endorsing, “that advisory services offered as a part of a transaction-based securities business can and should be conducted in a way that is consistent with a fiduciary standard of conduct.”[ii]

SEC Chairwoman Mary Jo White supports tighter regulations for those making funding recommendation to investors. At an industry conference, Ms. White stated that it was her “’personal view’” that brokers and those for whom the Commission provides oversight should be required to put “clients’ interests ahead of personal gain.”[iii]  Arthur Levitt, SEC chairman from 1993 to 2001, believes the SEC should have addressed the issue long before now, given the complexity of the products being presented to investors by brokers. “’I do not accept the notion that a broker is an order taker. If he’s a good broker, he’s much more than that.”[iv] Industry leaders, including Kenneth Bentsen, president and chief executive of the Securities Industry and Financial Markets Association, have expressed support in the SEC taking the lead in this matter. “’They’ve got the technical expertise.’”[v]

In testimony before the House Subcommittee on Financial Services and General Government Committee on Appropriations, Chairwoman White would not offer a timeframe for the completion, but made it clear that the SEC would be issuing its own fiduciary standards. Though the purposed rules may be similar, she stated that the SEC’s would differ from that of the DOL’s, even though the SEC did provide “’substantial technical assistance’” in crafting the DOL version.[vi]

Mark Trupo, DOL spokesman, claims there was close coordination between the two departments and that, “engagement with the SEC was comprehensive, and that the SEC’s input was incorporated into the plan.”[vii] The SEC refused to comment. Others, however, were more vocal in their questioning in the validity of the statement.

In his report, The Labor Department’s Fiduciary Rule: How a Flawed Process Could Hurt Retirement Savers, Sen. Ron Johnson, chairman of the Senate Homeland Security and Governmental Affairs Committee, claimed the DOL rule failed to address 26 significant concerns posited by the SEC. These included issues regarding the best interest contract exemption, “’conflicts with federal securities laws and [Financial Industry Regulatory Authority] rules, and a lack of cost-benefit analysis of alternatives.’”[viii]

So why hasn’t the SEC issued its own rule yet? It may have to do with administrative structure. While the DOL operates under a single administrator, the SEC has a five-person commission, complicating the approval process. Some believe the make-up of this commission would lead to a 3-2 vote on any fiduciary rule, given the current SEC commissioner and incoming commissioner, both republicans, are likely to vote against such a measure.[ix]

Only time will tell when the SEC releases its own fiduciary rule and how greatly it will differ from that of the DOL. Until then, one can only expect continued speculation and debate, a debate that many believe is long overdue.



[i] U.S. Securities and Exchange Commission (2012). “Investment Advisory Committee” [Electronic format]. Retrieved from: http://www.sec.gov/spotlight/investor-advisory-committee-2012.shtml

[ii] U.S. Securities and Exchange Commission (2013).  “Recommendation of the Investor Advisory Committee Broker-Dealer Fiduciary Duty” [Electronic format]. Retrieved from: http://www.sec.gov/spotlight/investor-advisory-committee-2012/fiduciary-duty-recommendation-2013.pdf

[iii] Baer, J. & Ackerman A. (2015, March 17) SEC Head Backs Fiduciary Standards for Brokers, Advisors [Electronic format]. Retrieved from: http://www.wsj.com/articles/sec-head-seeks-uniformity-in-fiduciary-duties-among-brokers-advisers-1426607955?mg=id-wsj

[iv] Ibid.

[v] Ibid

[vi] SEC, DOL Fiduciary Rules Will Likely Be Different, White Says (2016, March 22). [Electronic format] Retrieved from: http://www.thinkadvisor.com/2016/03/22/sec-dol-fiduciary-rules-will-likely-be-different-w

[vii] Barlyn, S & Lynch, S (2016, February 24) U.S. Labor Dept., SEC Clash Over Retirement Advice Rule: Report [Electronic format]. Retrieved from: http://www.reuters.com/article/us-usa-brokers-fiduciary-idUSKCN0VX0XZ

[viii] Senator Blasts DOL for Ignoring SEC’s Fiduciary Rule Concerns (2016, February 24). [Electronic format]. Retrieved from: http://www.thinkadvisor.com/2016/02/24/senator-blasts-dol-for-ignoring-secs-fiduciary-rul

[ix] Why SEC Fiduciary Rule May Be ‘Unattainable’ (2016, March 10). [Electronic format]. Retrieved from: http://www.thinkadvisor.com/2016/03/10/why-sec-fiduciary-rule-may-be-unattainable?ref=related-embedded