NEW YORK, Jan 24 (Reuters) - Securities and Exchange Commission staffers recommended on Friday that the agency apply the same standard of care to brokers and investment advisers, but industry executives say the report does little to end the decades-old debate or provide much direction to Wall Street.
The eagerly awaited study recommended that brokers be required to put clients' interests first when giving personal investment advice, the same standard applied to advisers. Despite running for a hefty 208 pages, the study was light on specifics on how brokerages will be expected to adopt these new standards.
"Until the last 'i' is dotted and the last 't' is crossed, there is a concern about how the standard of care will be implemented," said Ira Hammerman, general counsel at the Securities Industry and Financial Markets Association, the main lobbying group for U.S. brokerages.
Still, at least one brokerage executive has found cause for optimism. Kent Christian, president of the Financial Services Group at Wells Fargo Advisors, said the report was sensitive to different business models, indicating the SEC would not impose an excessively strict standard.
"Our worst case scenario would have been an overly restrictive call by the SEC that would not have permitted, or choked off, choice and access for investors," said Christian. "We saw no sign of that."
Meanwhile investment advisers, who have long pushed to have brokers governed by the same fiduciary standard, are reluctant to declare victory.
"This is a significant step, but the devil will be in the rule making," said David Tittsworth, executive director of the Investment Adviser Association. "The issues raised are going to be controversial."
The matter now moves on to the agency's five commissioners, who must approve new rules, although Republican commissioners Kathleen Casey and Troy Parades have already criticized the study for not evaluating the current system, how much the new rules would cost and the potential impact on lower-income clients.
Brokers, currently required only to show their recommendations were "suitable," contend compliance costs would rise if brokers are brought under a fiduciary standard.
The Dodd-Frank Act enacted last July said any common standard should not preclude brokers from earning commissions for selling products and executing trades. Investment advisers, by comparison, charge fees based on client assets.
Trade commissions vary depending on the type of product sold, so it could represent a significant conflict of interest for a broker under a higher standard of care.
The brokerage industry has expressed concern they will have to provide so many additional disclosures to clients it would no longer be profitable to have a commission-based business.
For now, firms are closely watching to see exactly what disclosure will be required, said Robert Colby a partner in the financial institutions practice at Davis, Polk & Wardwell.
Brokers may be required to provide clients when they open an account with more details on how they are compensated and potential conflicts of interest that may arise.
In addition, brokers may have to provide disclosures at the point of sale for certain products, including what they will charge. This would require firms to put in new systems and could be expensive to implement, said Colby.
"(The SEC) can make this disclosure process workable or not," said Colby. "They could require something that sounds sensible, but is impracticable to comply with."
Knut Rostad, chairman of the Committee for the Fiduciary Standard, thinks the cost argument is misleading.
"Compliance costs are going to rise because of everything that happened over the past three years," he said. "I've not seen any independent evidence that says costs will increase because of this (SEC) study."
(Reporting by Helen Kearney)