CFA urged the Securities and Exchange Commission (SEC) to reject in its entirety a rulemaking petition that would weaken fiduciary protections under the Investment Advisers Act and undermine the SEC’s ability to enforce principles-based standards. The petition from Financial Services Institute, American Securities Association, Competitive Enterprise Institute, and New Civil Liberties Alliance falsely accuses the SEC of engaging in a backdoor campaign to ban receipt of 12b-1 fees by investment advisers and proposes a rulemaking approach that would effectively eliminate the Advisers Act fiduciary standard. It also raises serious questions about the Commission’s ability to enforce principles-based standards, like both the Advisers Act and Regulation Best Interest.
The petition’s “attack on the Commission’s laudable efforts to enforce well-established obligations for investment advisers to act in their clients’ best interests and provide full and fair disclosure of material facts shows a disturbing disregard for what it means to be a fiduciary acting in a relationship of trust and confidence. And its recommended approach to addressing compensation-related conflicts would be a farce if it weren’t so potentially harmful,” CFA Director of Investor Protection Barbara Roper wrote. “Coming as it does just as Regulation Best Interest (Reg. BI) is due to take effect, the petition’s message that the Commission can only bring enforcement actions for violations of explicit rules suggests that these groups’ real goal goes well beyond watering down investment advisers’ disclosure obligations. If the Commission were to adopt the tortured logic on display in this rulemaking petition, it would be unable to bring enforcement actions for violations of principles-based rules without first going through a separate notice-and-comment rulemaking process to define each example of non-compliance as an explicit violation of the standard. Clearly, the effect, and presumably the intent, of this petition is to ensure that neither the Investment Advisers Act nor Reg. BI is enforced in a way that would require firms to limit the harmful impact of conflicts of interest on the recommendations they make, to act in their customers’ best interests, or even to clearly disclose the costs and conflicts associated with their business practices,” she added.