On November 10, 2016 Fordham University’s School of Law’s Corporate Law Center, in partnership with Morgan, Lewis & Bockius LLP, hosted its 17th Annual A.A. Sommer, Jr. Lecture on Corporate, Securities and Financial Law. This year’s lecture was titled “SEC – Don’t Throw Away Your Shot! A Renewed Call for a Uniform Fiduciary Standard to Protect Individual Investors,” and was led by Ira D. Hammerman, Executive Vice President and General Counsel for the Securities Industry and Financial Markets Association (SIFMA). As Mr. Hammerman will tell you, the title of the lecture is homage to the recent Broadway smash hit, “Hamilton,” and posited to the SEC to not throw away their “shot” through their inaction to create a uniform fiduciary standard in the securities industry pursuant to their statutory mandate in section 913 of the Dodd-Frank Act.
Mr. Hammerman commenced by outlining the history of the fiduciary standard in the securities industry, its origin in the case law resulting from the Investment Advisers Act of 1940, and the significant role it plays in governing financial advisors. He discussed the lack of a fiduciary standard in the securities industry for broker-dealers and the issues this absence has caused for both government regulators and those trying to navigate the murky waters of the securities industry from the investor side. He examined the fiduciary standard’s role has in determining the compensation structure for financial advisors and broker dealers, the tension between fee-based compensation versus commission-based compensation, the pros and cons of both, and the recent call on the securities industry to switch to only fee-based compensation.
Mr. Hammerman underscored that Congress gave the SEC the authority to create a uniform fiduciary standard for the entire securities industry including both advisors and broker-dealers in section 913 of the Dodd-Frank Act. Yet, six years later, the SEC has yet to do so, much to the dismay of those in the securities industry and their clients. The SEC’s inaction has left a large gap to fill in the securities regulatory regime, and in the meantime, the Department of Labor (DoL) is seeking to partially fill that gap, through its own regulation mandating a fiduciary standard for any advisor or broker-dealer handling an IRA account.
Mr. Hammerman concluded by focusing on the SIMFA’s suit against the DoL to invalidate the regulation. SIFMA’s complaint alleges that the regulation is out of the DoL’s statutory authority and would cause unnecessary repetition and overlap in securities regulation. Instead, according to SIFMA, the SEC should be the regulatory authority to pass this type of regulation, and is in fact given the explicit authority to do so by Congress. Finally, Mr. Hammerman ended with a renewed call on the SEC to pass such a regulation and create a uniform fiduciary standard.