SEC Advocates Fiduciary Duty for Advice by Brokers
In a major reversal of decades-old agency policy, the Securities and Exchange Commission issued a report Saturday calling for brokers to be held to the same high standard to act in the best interests of their customers that all other advisers face when they give investment advice to retail investors. This has been a top priority of investor advocates for years.
In a press statement responding to the SEC study, CFA Director of Investor Protection Barbara Roper said: “For decades, the Securities and Exchange Commission stood by and allowed broker-dealers to market themselves to investors as trusted advisers without requiring them to meet the most basic standard appropriate to that role, a fiduciary duty to act in their customers’ best interests. With the release of this report … the SEC has taken the first, essential step toward reversing that troubling record. From the beginning of her chairmanship, Chairman Mary Schapiro has pledged to deliver on this top investor protection priority, and we are pleased that the agency has moved one important step closer to delivering on that promise.”
Having completed the study required under the Dodd-Frank Act, the agency is now authorized to adopt rules implementing the fiduciary standard. The general rulemaking approach outlined in the report has won praise from investor advocates, financial planning and investment advisory groups, and even the main trade association for brokers. While acknowledging that much work remains, Roper expressed confidence that details could be worked out and a rule could be arrived at that “both maximizes investor protection and preserves investor choice regarding how they receive advisory services.”
Earlier in the week the SEC released a separate study on possible solutions to the resource challenges facing the agency in its oversight of investment advisers. In a press statement responding to the study, Roper said: “Ultimately, Congress will decide what if anything to do about the pressing investor protection concern raised by inadequate SEC funding in this area. We would hope that their decision would be made based on what approach would best protect investors. In the meantime, the agency has provided Congress with a useful roadmap to the issues they must address as they pursue a solution to this resource problem.”
Comcast-NBC Merger Approved with Strings Attached
The Federal Communications Commission and Department of Justice agreed last week to allow Comcast Corp. to purchase NBC Universal Inc. Though CFA and Consumers Union had in the past expressed objections to the merger on the grounds that it could restrict competition and choice, they concluded that the conditions placed on the merger by federal regulators provided meaningful protections for consumers. An analysis of the merger agreement by CFA Research Director Mark Cooper concludes that, as a result of those conditions, “the public interest will be served.” In a joint CFA-CU press statement issued as the deal was being finalized, Cooper said, “the Justice Department’s expected action would address the problem of vertical leverage in the video market more aggressively than at any time in decades. Defining the video market to include Online Video Distribution and extending DOJ oversight are critical to promoting a more competitive, consumer-friendly video market. The enforcement activities of the DOJ add a new dimension to efforts to promote and protect the public interest that is extremely important.”
Advocates Applaud Treasury Program to Speed Tax Refunds to Unbanked Consumers
Earlier this month, the Treasury Department announced a pilot project to offer 600,000 low-cost, prepaid debit cards to families who may not have a bank account. Consumers who receive the Treasury letter can quickly and easily obtain the card to use for receiving refunds at tax filing time this year. In a press release with National Consumer Law Center praising the Treasury pilot project, CFA Financial Services Director Jean Ann Fox said: “Taxpayers who already have a bank account can get speedy direct deposit of their tax refund from the IRS. Treasury’s MyAccountNow card extends that speed to families without a bank account. It enables taxpayers to get their tax refunds fast without paying steep fees for refund anticipation loans or refund anticipation checks.”
CFPB Oversight Needed to Check Abusive Industry Practices
A review of financial industry practices in the six months since the Dodd-Frank Act was signed into law shows that oversight by the new Consumer Financial Protection Bureau can’t come soon enough. CFA’s review of market developments found financial products and services offered to American families that come complete with unfair and abusive terms and conditions, and some that violate financial laws. “These financial traps and tricks that consumers have been dealing with since Congress passed financial reform vividly demonstrates the great need for the Consumer Financial Protection Bureau, with its ability to bring transparency to the marketplace and to write and enforce rules,” said CFA Legislative Director Travis Plunkett in a news release issued last week. “The CFPB will rein in these practices and ensure that the marketplace provides products and services that are fair and sustainable.”
Among the abuses identified were: hard-sell marketing of overdraft loans; pre-paid cards with ridiculous fees and missing protections; the robo-signing foreclosure scandal; sub-prime credit cards with high fees and interest rates; wrongful foreclosure on members of the military services; and Internet payday lending that traps consumers in a cycle of debt. “The CFPB will be up and running on July 21 and that day cannot come soon enough,” said Susan Weinstock, CFA’s Financial Reform Campaign Director.
Regulators Warned Against Narrow Mortgage Safe Harbor in Risk Retention Rule
CFA and the Center for Responsible Lending joined with key mortgage and housing industry groups in urging federal regulators to ensure that forthcoming credit risk retention rules required by the Dodd-Frank Act do not include an “unduly narrow definition of the important term ‘Qualified Residential Mortgage.’” The act provides an exemption from risk retention rules for certain high?quality, lower?risk mortgages. In a letter earlier this month to members of the Financial Services Oversight Commission, the groups warned that too narrow a definition “could cause significant disturbances in the fragile housing market.” “We strongly support the risk retention provision,” said CFA Director of Housing Policy Barry Zigas. “But it is important to focus the safe harbor on safe loan characteristics and not try to establish national underwriting standards for down payments, for instance, through an administrative rule making.”