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FINRA CEO Comments on SEC Dodd-Frank Studies on Adviser Oversight and Uniform Fiduciary Standard

By Jim Hamilton

Referring to the two Dodd-Frank mandated studies the SEC released two studies last month on the oversight of investment advisers and a uniform federal fiduciary standard for adviser and brokers, FINRA CEO Rick Ketchum said that FINRA has long advocated that more frequent examinations of investment advisory firms will enhance investor protection and looks forward to working with the SEC and Congress as decisions are made on how to implement the options in the study, one of which was to create an SRO for advisers.

On the standard of care issue, he said that FINRA fully supports moving to a fiduciary duty for broker-dealers when providing investment advice. A fiduciary standard should attempt to eliminate conflicts, but where conflicts can't be eliminated, they should be properly and clearly disclosed to customers. FINRA pledged to work closely with SEC staff on the implementation of a fiduciary duty for broker-dealers in a way that recognizes the value in being able to access a variety of models and products but doesn't restrict firms' activity.

On disclosure, FINRA thinks that the time is right to ensure that customers receive more plain English disclosure about products from broker-dealers, and disclosure about brokerage services?including the conflicts of interest that a broker-dealer faces when offering these services. Today, he noted, account agreements are enormous in size?and often discarded by customers.

FINRA believes there is a need for more Web-based, brochure-like disclosure that provide plain-English information about conflicts and fees, and range of products. It is a fundamental building block of a single standard of care.

To that end, FINRA published a concept proposal requesting comment in October. The proposed rule would require firms, at or prior to commencing a business relationship with a retail customer, to provide a written statement that describes the types of accounts and services it provides. Firms would also be required to disclose the conflicts associated with such services. FINRA is proposing a document similar in purpose to Form ADV, which investment advisers must provide to each advisory customer.

Full post as published by Jim Hamilton's World of Securities Regulation on February 09, 2011 (boomark / email).