NU Online News Service, Sept. 2, 1:41 p.m. EDT
The Independent Insurance Agents and Brokers of America told the Securities and Exchange Commission that creating a universal fiduciary standard for the sale of investment products would have "seismic repercussions" on agents and brokers.
In a comment letter to the SEC, the IIABA said that imposing a "one-size-fits-all" standard on the sale investment products also increases the likelihood of "second-guessing and litigation" years down the road, "when a particular transaction is retrospectively scrutinized."
The IIABA letter was sent in response to the SEC's request for comments on a mandate under the recent financial services reform law. Under the provision, the SEC must complete within six months of passage of the legislation a study on the fiduciary standard issue.
The provision then gives the agency the clear power to draft a new standard-of-care rule based on the findings of the report.
The comment period on the proposal closed Monday. More than 2,000 comment letters on the proposal are expected.
The IIABA letter urges the SEC to avoid "a rush to judgment and to carefully study these issues before acting."
A uniform standard-of-care is being pushed by consumer groups and financial planners.
The Financial Planning Coalition argued in its comment letter that establishing "a strong and uniform fiduciary standard of care" is "among the most important investor protection initiatives that the Commission could undertake."
Currently, insurance agents and brokers who sell a limited range of investment products must adhere to a so-called "suitability standard."
But the financial planners call the broker-dealer standard of care under the Financial Industry Regulatory Authority's suitability rule "ineffective in protecting investors receiving personalized investment advice because it leaves substantial gaps in coverage when compared to the fiduciary standard applicable to investment advisers."
The IIABA disagreed. It called the fiduciary standard "vague and ambiguous by its very nature."
In its comment letter, the IIABA said that it "strongly opposes" creation of a uniform fiduciary standard of care for registered representatives who offer financial products.
"Such a significant revision to the current regulatory structure is unwarranted, and the increased burdens on financial providers and adverse consequences for consumers certainly outweigh any measurable accompanying benefits," the IIABA said.
The IIABA letter was signed by Robert Rusbuldt, IIABA president and CEO.
"This seemingly innocuous and unremarkable change will have seismic repercussions that have not been fully examined by policymakers or regulators, and the indiscriminate and wholesale application of this standard has not been adequately defended and justified by its proponents," the letter said.
The IIABA suggested in its letter that many broker-dealers and registered representatives, including the main street businesses represented by IIABA, "will simply cease their securities-related operations."
They will do so because imposing a uniform fiduciary standard will increase the "uncertainty associated with such an amorphous and subjective standard.
"This government-imposed weakening of industry competition will ultimately harm consumers," the letter said.
