Registered Representatives; No "Fiduciary" Duty For Now
A year ago, the SEC published its study commissioned under Dodd-Frank and recommended the implementation of a uniform fiduciary duty standard. Much debate has prevailed since that announcement. Will registered representatives be subject to the same fiduciary duty as investment advisors? Will registered representatives be subject to some form of hybrid fiduciary duty standard? According to a recent SEC announcement that went without much fanfare, in 2012, at least, the answer will be none of the above.
The SEC has punted once again on making a definitive conclusion regarding the implementation of a uniform fiduciary duty standard. Broker-dealers should not assume that there will never be such a standard, only that a formal adoption will be at least another year away. In that time, the SEC will surely complete the long-debated cost benefit analysis of the need for such a standard. Indeed, the SEC may ultimately conclude that the adoption of FINRA Rule 4530 and the changes to the suitability and know your customer standards were more than adequate such that there may be no need to have a formal standard. Registered representatives may already be effectively subject to their own fiduciary duty. Indeed, depending upon where you reside, courts have already concluded that you are subject to a fiduciary duty.
Regardless of what happens in 2013, once thing is for certain. FINRA is increasing its enforcement efforts and will surely focus on conformity with its new rules. The safest course for broker-dealers is to make sure you have adequate compliance programs to address this heightened regulatory environment, or you will be totally unprepared when there is a formal uniform fiduciary duty standard.