New rules that could require certain brokers to act in the best interests of clients should enhance laws already in place for some financial advisers, a coalition of investor advocacy and trade groups wrote late on Thursday.
The letter to Securities and Exchange Commission Chairman Mary Schapiro from groups that include the Consumer Federation of America and the AARP is the latest development in a debate about upgrading the standards of brokers who give personalized investment advice. Calls for the rules change gained traction during the 2008 financial crisis.
While the brokerage industry generally supports the change, it is concerned about how it might affect the way brokers are compensated, among other things. Brokers are paid through the commissions they receive when investors buy and sell securities. Many other types of financial advisers receive a flat annual fee for their services.
Brokers may earn more from some investments they propose to clients, something investor advocates say could motivate a broker to push a more lucrative product. The flat fees investment advisers charge, along with the different rules they follow, typically prevent such conflicts of interest, say investor advocates.
The coalition letter addressed points made in a July letter to the SEC from the Securities Industry and Financial Markets Association, or SIFMA, a trade group representing major retail brokerages.
SIFMA expressed support for a fiduciary standard for brokers, but said using established case law and legal interpretations of “fiduciary” in the context of the brokerage industry would be “commercially impractical” because of the differences in how brokerages and investment advisers run their businesses.
