Tug of war: the continuing quest to balance suitability and fiduciary standards.

• Author: Monterio, Brad J.
• Position: Financial planning

We're one year into the Dodd Frank Wall Street Reform and Consumer Protection Act. which was intended to construct stronger consumer and investor protections and rebuild trust and credibility in the process, and a healed debate continues between the broker-dealer and investment-adviser camps over some of the acts provisions.

It's a classic tug of war to strike a balance between suitability standards for broker-dealers and fiduciary standards among investment advisers to arrive at a uniform fiduciary standard that governs both communities. With more than five million financial services professionals in the United States managing other people's money the potential impact will be significant.

CPA financial planners and investment advisers are on both sides of this simple, depending upon the types of services they offer and how their firms are structured. CPA's who are regulated by their state board s of accountancy and adhere to stringent professional voiles of conduct i.e.. CalCPA and AICPA are already subject to standards that are closely analogous to a fiduciary standard.

Dodd-Frank Sec. 913 required an SEC: stall study to address the obligations of broker-dealers and investment advisers. That study, submitted to Congress January 20l1, made two significant recommendations that the SEC:

1. Use its discretionary rulemaking powers to implement a "uniform fiduciary standard of conduct" when they provide personalized investment advice about securities to retail investors; and

2. Consider harmonizing broker-dealer and investment-adviser regulation when both provide the same or substantially similar services to retail investors, and when this harmonization adds a. meaningful layer of investor protection.

Possible Rulemaking by the End of 2011

SEC Chair Mary Schapiro indicated in a July 14 interview with Reuters that the SIX: is tentatively eyeing the end of 20 I 1 in propose new rules around fiduciary standards.

Still the winds of change are here and the regulatory landscape will evolve to a higher fiduciary standard. Retail investors lost unfathomable amounts of wealth during the recent economic downturn. Some lawmakers, pundits and consumer advocates have indicated that this in part was due lo lack of a uniform fiduciary standard and, perhaps more important, a seeming lack of care to keep the best interests of the investor in mind when making investment recommendations to those investors.

Change is needed. Change is coming Retail investors: fret not, for help is on the way.

CPAs who serve as financial planners, investment advisers or investment managers must keep abreast of these developments. It's important that CPAs become familiar with any exemptions defined in Dodd-Frank as well. Consult your legal counsel and professional associations for additional information and to determine what impact the changes will have on you. Resources for CPAs who provide financial planning and investment advisory services can be found on the AICPAs website. www.aicpa.org see sidebar. Page 20.

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Opposing Sides Pull Hard for Their Beliefs

At the center of the struggle is the difference in standards followed by broker-dealer and those of investment advisers. At its simplest, broker-dealers follow a suitability...