Eighty years ago this August Congress passed the Investment Advisers Act of 1940. This was a victory for fiduciary principles. It separated sales from advice and protected investors. Today, SEC rulemaking effectively rips out the heart of what our grandfathers and great grandfathers fought for in 1940. In addition, recent revisions to CFP Board standards are greatly lacking, both in requirements and guidance for CFPs®. The SEC’s Reg BI and the CFP Board standards abandon core principles of the Advisers Act. They are a giant leap backwards and unabashedly violate plain common sense.
Paper and Op-Ed
On June 15th, 2020, Boston University Law Professor Emerita Tamar Frankel released a paper entitled “The Regulators’ Conflicts of Interest” that was published on Advisor Perspectives. It would not be an overstatement to call Dr. Frankel a juggernaut in the field of fiduciary scholarship; she is often referred to as “The Godmother of Fiduciary Law.” In her paper, she remarks that the SEC’s Reg BI will “encourage the acceptance and transmission of conflicts of interest.” Dr. Frankel goes further by calling Reg BI “historic, giant step backwards in securities regulation” and writing it is “certain to undermine trust in financial advisors.”
Knut Rostad, President of The Institute for the Fiduciary Standard, also published an Op-Ed in Advisor Perspectives on June 15th entitled “SEC and CFP Board Standards Reject Common Sense.” In this Op-Ed, he develops the basis for why the SEC and CFP Board reject commonsense principles set out plainly in the Advisers Act of 1940, and why the changes “further investor distrust of finance, brokers and advisers.”
The Institute hosted a June 17th, 2020 Webinar entitled “After the Advisers Act: What the New SEC and CFP Board Standards Mean for Investors.” The Webinar brought together several fiduciary experts, including:
- Skip Schweiss, TD Ameritrade (Panel MC)
- Knut Rostad, Institute for the Fiduciary Standard
- Tamar Frankel, Boston University School of Law
- Brian Hamburger, MarketCounsel
- Phyllis Borzi, Former Assistant Secretary, Department of Labor
- Deborah Bosley, PhD, The Plain Language Group
The webinar aims to bring attention to the meaning of the SEC and CFP Board standards. Knut Rostad offered prepared remarks at the beginning of the webinar, which you can download here.
June 19, 2020 (InvestmentNews) – Borzi Challenges SEC to Use Reg BI to Attack Revenue Sharing Conflicts, by Mark Schoeff, Jr.
June 19, 2020 (FA Magazine) – In Reg BI Revolt, RIA Trade Group Unveils ‘Conflicts Can Be Deadly’ Ad Campaign, by Tracey Longo
June 23, 2020 (Financial Planning) – A New Reg BI Compliance Wrinkle? by Jessica Matthews
Institute Whitepaper on SEC’s Reg BI and CFP Board Standards
On April 15th, the Institute released a paper titled “New SEC and CFP Board Standards Starting June 30th Abandon Longstanding Principles that Treat Sales and Advice Differently,” which elaborates extensively on the themes discussed in the “After the Advisers Act” webinar. You can download a copy of the paper here.
- The paper begins by chronicling the history of how the SEC has allowed the definition of investment advice to drift far afield from what it has traditionally meant: fiduciary advice.
- Then, the paper describes how both SEC and CFP Boards’ new standards—set to take effect on June 30th—not only ignore structural, business, and legal differences that separate brokers from independent advisers but also are an historic setback for investors. The Institute elaborates on the fact that broker conflicts differ in magnitude, complexity, and opaqueness from RIA conflicts.
- Finally, the Institute offers recommendations on how the differences in broker and advisor conflicts may be understood and reconciled. And on the implications for fee-only, fiduciary advisor firms of a post-SEC and CFP Board Standards era for financial advice.