Skip to content

The SEC’s Own Compliance Culture

I’m beginning to think the term ‘compliance’ ought to be repurposed.  To simply ‘comply’ with legal and regulatory guidelines is not exactly a lofty standard, yet that’s the term that broker-dealers and wirehouse firms have adopted, and it seems to be the term preferred by the our regulatory friends over at the SEC.  Maybe you see something different, but from where I sit, there is no actual encouragement from federal regulators to go beyond (somewhat grudging) compliance and embrace higher standards.

Like fiduciary, for example.  Recently, we heard compelling evidence that the SEC wants to downplay the fiduciary concept among the organizations it regulates.  You don’t have to take my word on this; it’s right there in black and white, in the most recent ‘guidelines’ offered by the SEC staff about what advisors can and cannot, should and should not say in their Form CRS disclosures.  (You can find their guidance here:

Cutting right to the chase, the SEC staff says that investment advisors may only use the terms “fiduciary” and “fiduciary duty” on their disclosure form “to the extent permitted by the Form CRS instructions,” and then goes on to remind firms that “the relationship summary is designed to serve as disclosure, rather than marketing material.  Using phrases such as “an investment advisor who is held to the fiduciary standard” is likely to be inappropriate and misleading.”  In a footnote, the guidance notes that “when firms include impermissible, extraneous or unresponsive disclosures, it can make it harder for investors to focus on the key information.”

Misleading?  We might argue that no advisors we know are holding themselves to a fiduciary standard in order to achieve some kind of marketing advantage over the brokerage office down the street.  But a much bigger point is that the fiduciary standard—as Knut Rostad of the Institute for the Fiduciary Standard has pointed out—has been determined by the Supreme Court (1963 ruling) to be at the very heart of the Investment Advisers Act of 1940.  It is the foundation of what it means to be an RIA registered with the SEC instead of a tipster or a tout.

And perhaps a bigger argument: does the SEC not WANT advisory and brokerage firms to compete with each other, in a marketing context, over which of them is willing to embrace fewer conflicts of interest and who is more willing to put the interests of financial consumers they work with first?   

Wouldn’t that healthy competition tend to raise standards beyond mere (somewhat grudging) compliance with those annoying low-bar regulatory guidelines, toward behaviors that consistently raise the bar and benefit the investing public?

These Form CRS guidelines and the admonition not to mention ‘fiduciary’ should be astonishing, shocking, even, and yet perhaps the most shocking thing about them is that nobody is astonished, nobody is shocked.  Why would we be?  This effort to discourage what ought to be encourage has characterized the SEC’s regulatory ‘leadership’ for two decades or more.  It’s awful–and more of the same.

If we’re going to repurpose the term ‘compliance’ in the way that is most relevant to the financial services marketplace, then maybe we should say that whatever the brokerage firms tell the SEC to do, the SEC staff readily complies with it.  Until that changes, the standards for providing advice to consumers will be far below the standards of other professions, and the very people the SEC is supposed to be protecting will be, purely on the basis of its policies, the ultimate losers.