Eighteen months after the UK brought in RDR, a coalition of US consumer and advisory groups has lobbied the US financial regulator to introduce more stringent universal standards for advisers.
| The six organisations supporting tougher regulations |
The Certified Financial Planner Board The Financial Planning Association The National Association of Professional Financial Advisors The Consumer Federation of America The American Association of Retired Persons Fund Democracy |
The six-strong group of organisations, which include the Financial Planning Association and the National Association of Professional Financial Advisors, have urged the US Securities and Exchange Commission to press ahead with reforms to the advisory world.
The SEC has been consulting with the industry on whether to revamp the dual regulatory system and scrap suitability standards, which would require an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, and a decision is expected before the end of 2014.
Similar to the UK RDR, with its requirement for QCF level four and a compulsory statement of professional standing, the reforms would require all broker-dealers and investment advisers to comply with a blanket regulatory code of conduct, requiring them to act in the best interests of clients when making investment recommendations.
In a 16-page letter, the group said that the current dual system, where some advisers follow suitability standards instead, had caused “real” and “pervasive” harm for US investors.
The letter stated: “Evidence of this harm is found in the difference between recommendations that satisfy a suitability standard and those that are designed to service the best interests of the investor
“There is an adverse effect that unchecked conflicts of interest have on recommendations and in the effects of a market where investment products compete to be sold rather than bought.”
In its 102-page report for 2013, ratings agency Morningstar predicted that “increased regulatory scrutiny” from both the SEC and the Department of Labor would lead to an expanding need for “independent advice, tools and solutions” in the US.
Stephen Wall, senior analyst at US-based research and advisory firm Aite Group, said: “The debate on fiduciary standards, and whether they should apply to more advisory firms, has raged for some time in the US, and it is typical of the more client-centric regulation that is now unfolding across the world.
“It is the UK that has led the pack, with the new FCA adopting a very aggressive approach to change the entire culture of the financial sector.”
