COMPLY-Schapiro's exit leaves broker fiduciary plan up in air
By Suzanne Barlyn
Nov 26 (Reuters) - Mary Schapiro's exit from the U.S. Securities and Exchange Commission means more uncertainty for Wall Street about a key reform that she championed: requiring securities brokers who give advice to clients to act in their clients' best interests.
The SEC's chairman has long made clear her support to require brokers to follow higher ethical guidelines with clients, known as a fiduciary standard. But Schapiro, appointed to head the agency in 2009, will likely leave with the proposal where it stands: stalled. Schapiro announced on Monday that she would step down from the agency on Dec. 14.
"I have no doubt that Chairman Schapiro was quite sincere that she hoped to achieve this as one of the hallmarks of her tenure," said Barbara Roper, the director of investor protection for the Consumer Federation of America, an advocacy group that supports the measure.
At issue are the varied rules that apply to different types of financial advisers. Financial advisers who register with the SEC must act as fiduciaries, or in their clients' best interests. But brokerage firm advisers, who register with the industry's private regulator, the Financial Industry Regulatory Authority, only have to suggest investments that are "suitable," based on factors such as a client's age and risk tolerance.
Brokers may earn more from some investment options they pitch to clients, something investor advocates say could motivate a broker to push a more lucrative product. Flat fees that investment advisers charge, along with the different rules they must follow, are more likely to prevent potential conflicts of interest, say investor advocates.
Schapiro has tried to change that, with no success.
In 2009, she raised concerns about potential conflicts of interest driven by certain broker compensation practices in a public letter to brokerage firm chief executives.
"Some types of enhanced compensation practices may lead registered representatives to believe that they must sell securities at a sufficiently high level to justify special arrangements that they have been given," she wrote. That could motivate brokers to sell unsuitable securities or make unnecessary trades to earn commissions. Continued...