The U.S. brokerage industry continues to lack uniformity in regulations on providing investment advice, and Bank of America (NYSE: BAC) exec Sallie Krawcheck thinks something should be done about that.
The Securities and Exchange Commission on Friday proposed extending the fiduciary standard — which forces financial advisers to place their clients’ interests above their own — to brokers when they advise individual investors, one more step toward resolving a long-running debate.
Krawcheck said it was too early to tell how rules pending before the SEC would affect Merrill Lynch, the bank’s brokerage unit, but she contends the maze of current rules and industry labels is too confusing. Wall Street, she said, should also use “plain English” when communicating with clients. Krawcheck further commented “You should not require a client base to have a Ph.D. in regulatory science to figure it out.”
The SEC report into this matter observed that many investors do not realize that brokers — often advertised as “financial advisers” — are not required to work in the client’s best interests. Registered investment advisers, by contrast, are beholden to serve as fiduciaries. While this would appear to pose a challenge for traditional brokerages, Krawcheck told reporters she ultimately expects both investment advisers and brokers will be affected by the Dodd-Frank reforms.
The SEC last week issued another report that offered Congress three options: create a new self-regulatory body for advisers, make advisers answer to brokerage regulator FINRA or give the SEC resources to expand adviser oversight. Adopting a standard will become an important step in increasing transparency in the industry as desired by the Dodd Frank legislation, and investors alike.