Industry Study on Fiduciary Duty Standards Faulted
Earlier this month, CFA filed comments with the Securities and Exchange Commission (SEC) warning the agency against relying on a misleading Securities Industry and Financial Markets Association (SIFMA) study as it prepares its own study of the standard of conduct that should apply to brokers when they give investment advice. Based on the false assumption that brokers would be required to adopt a fee-based compensation structure if a fiduciary duty were imposed, the SIFMA study concluded that a fiduciary duty for brokers, dealers, and investment advisers would decrease choice and investor access to these service and increase investor costs.
“SIFMA had an opportunity to provide useful information to the SEC on the potential impacts of various approaches to imposing a fiduciary duty on brokers’ advisory activities,” said CFA Director of Investor Protection Barbara Roper. “Unfortunately, it chose instead to analyze an approach, banning commission-based compensation that the Commission is not even permitted to adopt under the Dodd-Frank Act. Because its ‘analysis’ is incomplete, one-sided, and based on fundamental misrepresentations of the effect of imposing a fiduciary duty, this report does not add any insight into those impacts. For the SEC to make use of this report, therefore, it would need to obtain the underlying data, compare it with comparable data for advisory firms, and provide its own objective analysis of the implications of that data for policy options that are actually under consideration.”
CFA, in conjunction with the National Consumer Law Center (on behalf of its low-income clients), the Center for Responsible Lending, Consumers Union, Consumer Action, National Association of Consumer Advocates and U.S. Public Interest Research Group, wrote to the Office of the Comptroller of the Currency (OCC) to urge the agency to immediately exercise stricter oversight of bank overdraft practices. These recommendations were in response to repeated examples of aggressive and misleading marketing of overdraft services by some banks, as well as actions taken by other banking regulators (including the Federal Deposit Insurance Corporation and the Office of Thrift Supervision) to monitor these practices.
“The OCC’s recent $33 million enforcement action involving Woodforest National Bank illustrates the need for the OCC to address excessive overdraft fees across the board,” said Jean Ann Fox, Director of Financial Services. “Woodforest Bank’s practices do not appear to be atypical. The OCC should also limit the number of overdraft fees to six per year, consistent with the FDIC’s recent proposal recognizing that charging more than six fees per year constitutes excessive use.”
The press release is available here.
In comments filed with the Consumer Product Safety Commission (CPSC), CFA recommended that the CPSC initiate a mandatory rulemaking process to ban or limit cadmium in children’s products, since cadmium is a known toxic material and is increasingly used in children’s products.
“Children should not be exposed to hazardous substances when they play with toy jewelry and drink from children’s cups. CPSC efforts should result in a mandatory standard, include children’s products and institute a total cadmium level standard,” the comments stated.
In September House testimony on the challenges of maintaining competition in the digital marketplace, CFA Director of Research Mark Cooper warned that having a small number of competitors in the digital marketplace leads to a “winner-take-most” economic model. Cooper said that antitrust and competition regulators must be wary of this approach, because it can result in troublesome economic distortion and undermine competition..
“The ability to distort and undermine competition is particularly great in these industries because the dominant platform owner controls the functionalities on which complementary applications and services rely. They can easily foreclose or degrade the quality of products that compete with the applications and services the platform owner offers or wants to dominate and control,” he said.
Cooper made several policy recommendations, including vigorous enforcement of antitrust and competition policies, high-level scrutiny of vertical leverage, and swift action against artificial cost switching and other anti-consumer actions.
Dr. Cooper’s testimony is available here.