The Investment Company Institute (ICI) voiced its support for the Securities and Exchange Commission’s (SEC) proposed Standards of Conduct for Investment Professionals but did offer some modifications.
ICI believes the standards of conduct proposal will create a practical framework for promoting investment recommendations that are in investors’ best interest while preserving investors’ option to choose the type of investment professional they want.
“The SEC’s proposals represent a critical step forward toward establishing a high standard of conduct for broker-dealers providing recommendations to retail investors,” ICI President and CEO Paul Schott Stevens said. “Importantly, that standard would apply to both retail and retirement accounts. The proposals also seek to improve investors’ understanding of their relationship with a financial professional. We commend the SEC and its staff for taking the lead at a crucial time in the debate over standards to ensure that financial professionals best serve America’s investors.”
The organization, however, does see room for improvement in a few areas. Specifically, ICI said the SEC should clarify when and how a broker-dealer must address conflicts of interest, particularly regarding recommendations of proprietary products. ICI recommends an approach that would focus the mitigation obligation on incentives that create a conflict of interest for the representative that may influence the recommendation.
Also, the SEC should confirm that a broker-dealer may consider a variety of important factors, in addition to cost, in making a recommendation. The SEC should also direct customers to the information about fund fees and expenses in the prospectus, rather than independently calculating them.
Further, ICI said the SEC should refine its interpretation of an adviser’s fiduciary duty by clarifying the scope and applicability of an adviser’s fiduciary duty. It should recognize critical differences between institutional advisory relationships and the retail advisory relationships. The SEC should also confirm that the existing standard for a client’s consent to conflicts is whether the adviser has provided full and fair disclosure of material conflicts and obtained informed client consent.
Finally, the association recommended that the SEC not pursue a proposal about applying broker-dealer rules—such as licensing requirements—to the investment adviser regulatory regime.