Investor protection: New rules threaten traditional brokerage model
Dodd-Frank Act US fiduciary standard hits brokers; Costs likely to increase for issuers and investors
As the SEC’s comment period for the Dodd-Frank regulation that seeks to make investment advisory a level playing field draws to a close, the future of traditional brokerage models in the US looks set to change.
According to a survey released in September by a group of consumer organizations in the US, more than two-thirds of individual investors believe they receive the same quality of advice from a broker as they would from a registered investment adviser. They are lucky if they do.
The fiduciary standard that at present applies to registered investment advisers ensures that clients’ interests are put first at all times, that all advice must be transparent, expenses are to be controlled and fees and costs are fully disclosed.
Brokers have only had to comply with a "suitability standard". Often called "financial advisers" – a term that fudges the distinction with the more tightly regulated investment advisers – brokers need only disclose conflicts of interest, but do not have to avoid them, and do not have to seek the best pricing for investors.
The new regulation seeks to ensure that brokers and investment advisers adhere to the same "fiduciary standard".