SEC Official Targets Dual Registrants
In a recent industry speech, Norm Champ, the SEC’s Director of Investment Management, said that the SEC will be reviewing with “keen interest” the process by which dual registrants migrate brokerage accounts to fee-based advisory accounts. Mr. Champ said that the examination staff will examine “the significant risks to investors presented by dual registrants’ conflicts, including risks from migration of accounts for the purpose of generating fees with little benefit to clients.” Mr. Champ indicated that such client migrations may not be consistent with an adviser’s fiduciary duty to act in the client’s best interest.
OUR TAKE: This concern is a reprise of the reverse churning line of cases brought by FINRA several years ago. It brings a fiduciary duty concept to brokers affiliated with investment advisers. It also raises the related question about whether advisers affiliated with broker-dealers should move clients to the BD if fees would be less and vice versa.