September 5 2017


Herb Perone

IAA to SEC: Preserve Advisers' Fiduciary Standard, Impose Equivalent Standard on Broker-Dealers

Washington, DC (September 6, 2017) –- The IAA has submitted a letter responding to SEC Chairman Jay Clayton’s request for comment on the standards of conduct for investment advisers and broker-dealers. In our letter, we reiterate our strong support for the existing fiduciary standard under the Advisers Act and our longstanding advocacy that all financial professionals providing investment advice about securities to clients should be required to act in the best interest of their clients.  

The Chairman’s request noted that the SEC has previously considered a broad range of potential actions on how to address the different standards of conduct that apply to investment advisers and broker-dealers in connection with the provision of investment advice to retail clients. These actions have included (i) maintaining the existing regulatory structure; (ii) requiring enhanced disclosures; (iii) developing a best-interest standard of conduct for broker-dealers; and (iv) pursuing a single standard of conduct that would “harmonize” investment adviser and broker-dealer rules and regulations. 

The IAA’s letter strongly recommends that the Commission preserve the well-established fiduciary duty for investment advisers under the Advisers Act and focus instead on adopting an equally stringent standard for broker-dealers under the Securities Exchange Act of 1934. In our letter, we emphasize that maintaining the “status quo” is not a viable option as it would not alleviate the considerable investor confusion that persists today. We also would oppose a “disclosure only” solution because such an approach would not be sufficiently protective of investors. Finally, we express our concern that pursuit of a single uniform standard of conduct for advice to retail investors would dilute the existing Advisers Act fiduciary standard and lead to inconsistent treatment of retail and institutional clients, which are currently both protected by the fiduciary standard under the Advisers Act.

“The SEC must not weaken the robust fiduciary standard that governs the relationship between investment advisers and their clients – and that has been the highest standard of professional conduct and investor protection for more than 75 years,” said IAA President & CEO Karen Barr. “Instead, the Commission should extend this powerful overarching duty to act in the best interest of clients to brokers providing investment advice.” Specifically, the IAA asked that the SEC: 

  1. Preserve the fiduciary duty standard under the Advisers Act, which encompasses the important principles of loyalty and care. 

    Our letter explains that the Advisers Act provides a well-established and comprehensive framework for the provision of investment advice to clients. This framework has been consistently interpreted and applied by the SEC and the courts to require investment advisers to serve their clients with the highest duty of loyalty and care. Because the Advisers Act fiduciary standard is flexible and principles-based, it has worked well for advisers and a broad spectrum of  clients for generations. Thus, the IAA strongly opposes altering it, including any attempt to “harmonize” it with the broker-dealer suitability standard.

  2. Affirm that all persons who provide discretionary investment advice to clients, regardless of the form of compensation, are subject to the fiduciary duty standard under the Advisers Act.  

    To eliminate any confusion as to the status of discretionary advice under the federal securities laws, the IAA letter asks the SEC to formally confirm that any person providing clients advice about securities on a discretionary basis is subject to the Advisers Act because discretionary advice cannot be deemed “solely incidental” to brokerage services. In addition, we ask the SEC to codify its long-held view that when a broker-dealer charges its customers a separate fee for investment advice, it is providing advisory services for “special compensation” subject to the Advisers Act.

  3. Adopt a new best-interest standard of conduct under the Exchange Act for broker-dealers when making non-discretionary investment recommendations to retail customers that is no less stringent than the Advisers Act fiduciary standard and that similarly encompasses the overarching principles of loyalty and care.

    The IAA letter points out that the services for which broker-dealers and investment advisers currently are subject to different standards of conduct are primarily non-discretionary investment advisory services, such as making recommendations about securities or investment strategies involving securities to brokerage customers. Consistent with the Advisers Act, our letter asks the SEC to adopt a new standard of conduct for broker-dealers that is principles-based to allow it to be tailored to broker-dealers’ core business activities and to provide flexibility for it to adjust to changing markets and business models through a layered interpretive approach. To ensure that the interests of retail investors always come first, regardless of the different business models of investment advisers and broker-dealers, our letter urges that any new Exchange Act standard be as robust as the Advisers Act fiduciary standard.

  4. To the extent that the Commission does not adopt an equally stringent standard under the Exchange Act, it should prohibit firms or individuals that are not subject to the Advisers Act fiduciary standard from holding themselves out in a manner that implies a fiduciary relationship.

    The IAA letter emphasizes the widespread confusion over the ways that financial professionals hold themselves out to the public, noting that investors generally do not understand the key distinctions between broker-dealers and investment advisers, nor do they understand  the varying legal duties of and standards imposed on broker-dealers and investment advisers. This confusion is exacerbated by financial professionals using terms such as “financial advisert” or “financial advisor” that imply a relationship of trust and confidence, but where those professionals disclaim fiduciary responsibility for the relationship. In our letter, we urge the SEC to prohibit firms or individuals from holding themselves out in a way that implies a relationship of trusted adviser without being subject to either the Advisers Act fiduciary principles or an equally strong new standard under the Exchange Act.

    The IAA letter to SEC Chairman Clayton is available here

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About Investment Adviser Association

The Investment Adviser Association (IAA) is the leading trade association representing the interests of SEC-registered investment adviser firms. The IAA’s more than 600 member firms collectively manage approximately $20 trillion in assets for a wide variety of institutional and individual investors. In addition to serving as the voice of the advisory profession on Capitol Hill and before the SEC, DOL, CFTC and other U.S. and international regulators, the IAA provides extensive compliance and educational services to its membership. For more information, visit or follow us on LinkedIn, Twitter and YouTube.

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