Reuters: Regulatory News: COMPLY: Fiduciary advocate Rostad plods along, despite gridlock

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COMPLY: Fiduciary advocate Rostad plods along, despite gridlock Sep 6th 2012, 16:10 By Suzanne Barlyn Sept 6 | Thu Sep 6, 2012 12:10pm EDT Sept 6 (Reuters) - For nearly four years, Knut Rostad has been championing a fiduciary standard of responsibility for financial advisers, especially brokers and others who sell securities. Thousands of financial advisers are already required to act in their clients' best interests. Applying that standard to securities brokers, who register with Wall Street's industry-funded regulator, would help eliminate confusion among investors and protect them from deceptive and costly practices, Rostad and others argue. Those brokers must sell investments that are merely "suitable" - not best - based on factors such as a client's age and risk tolerance. An informal group Rostad helped launch to look at this issue after the 2008 U.S. financial crisis has morphed into the Institute for the Fiduciary Standard, a Virginia-based non-profit. Despite the efforts of the group, which Rostad heads, the SEC has still not proposed rules that would create a fiduciary standard for securities brokers. But Rostad, whose day job is chief compliance officer of Rembert Pendleton Jackson, a registered investment adviser in Falls Church, Virginia, is not throwing in the towel. He devotes about 20 hours per week to fiduciary advocacy issues. He recently spoke with Reuters about the road ahead. Edited excerpts of the interview with Suzanne Barlyn follow: Q: The Dodd Frank financial reform law of 2010 paved the way for the SEC to develop rules that would require a higher standard of responsibility for brokers. What happened? A: It's clear that the fiduciary effort is stalled - both at the SEC and the DOL (U.S. Department of Labor, which is considering a separate fiduciary standard for brokers who give investors advice about individual retirement accounts). Q: Are you discouraged? A: There are clearly disappointments. But I take the long view. The simple idea that investors receiving advice should only receive advice that is in their best interest is an idea that will prevail over time. Q: SEC Chairman Mary Schapiro has publicly voiced support for "harmonizing" standards for brokers and registered investment advisers. An SEC staff study also concluded that investors were confused by the varying standards for advisers and reforms would help them. What stopped the momentum? A: There was never any doubt that overcoming the forces of the financial services industry in Washington is very difficult. They have a very strong lobbying effort. Those efforts have been extraordinarily focused on raising questions about the need for or the importance of the standard. The industry's major lobbying group (the Securities Industry and Financial Markets Association, SIFMA), provided (guidance) to the SEC on a "uniform" fiduciary standard that would effectively eliminate the (existing) fiduciary standard. The insurance industry's force on Capitol Hill is also extraordinarily strong. Q: Why do you say the securities industry's position would eliminate the fiduciary standard? SIFMA says it supports one. A: One of the most serious issues is SIFMA's emphasis on disclosures of conflicts of interest to investors (such as when a brokerage receives certain fees in exchange for steering investors to specific products) and whether meeting a disclosure requirement would be efficient for the company. This turns on its head decades of established legal opinions involving the danger of conflicts. The clear and unambiguous message is that conflicts are harmful to investors. Q: What problem on Wall Street troubles you most? A: I don't know where you begin. Just (recently) there was Citigroup's $590 million settlement (with shareholders who lost millions and accused the bank of hiding billions of dollars of toxic mortgage assets). For many companies, that's just another transaction. I think we forget the way normal investors look at that: A big bank paid $500 million after being accused of misleading investors and there's no (determination) of its guilt or innocence. Q: Is the Institute trying to reinvigorate interest in the fiduciary standard? A: We have proclaimed that this is "Fiduciary September." We are also sending a group of 12 people to meet (SEC) Chairman Schapiro and unveil a declaration they signed. It urges the SEC and Labor Department to complete their fiduciary rules. The group includes Arthur Levitt (former SEC Chairman), Jack Bogle (founder of the Vanguard Group), Sheila Bair (former Federal Deposit Insurance Corp Chairman) and Paul Volcker (former Federal Reserve Chairman). The meeting is set for Sept. 11. Link this Share this Digg this Email Reprints

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