For months, the Securities and Exchange Commission has struggled to keep a problematic “F-word” out of proposed rulemaking regarding professional advice for retail investors: “fiduciary.”

Now, with a 16-3 vote by members of its Investor Advisory Committee, a more fiduciary-focused set of standards might be in the offing. It is urging that forthcoming rulemaking “be characterized explicitly as, a fiduciary duty.”

In the waning days of the Obama administration, the Department of Labor issued its own fiduciary rule, one that outlined standards and expectations for investment advisers. In March, the U.S. Court of Appeals for the Fifth Circuit ruled in favor of plaintiffs who challenged its legality, arguing that the agency exceeded its statutory authority.

Amid the legal wrangling, many industry professionals questioned the wisdom of a one-size-fits-all fiduciary standard, arguing that the SEC should have taken charge of any related initiative. That argument assumed that the Commission’s take on such a rule would be more informed and favorably tailored to the financial services industry.

On April 18, the SEC followed through and proposed a package of proposals to “address retail investor confusion about the relationships that they have with investment professionals."

Under the SEC’s proposed Regulation Best Interest, a broker-dealer making a recommendation to a retail customer would have a duty to act in the customer’s best interest, without putting their own financial or other interests ahead of the client. Under a “care obligation”—a carefully parsed term offering an alternative to the stricter mandate of “fiduciary duty”—firms and individuals would need to “have a reasonable basis to believe that the product is in the retail customer’s best interest.”

The Investor Advisory Committee recommendations (drafted by its Investor as Purchaser Subcommittee) supported the Commission’s intent to “raise the bar for the provision of personalized investment advice by broker-dealers.” It did, however, outline concerns.

In a previous recommendation, the IAC advocated “that all personalized investment advice to retail customers be governed by a fiduciary duty, regardless of whether that advice is provided by an investment adviser or a broker-dealer.” In its latest recommendation, the Committee wrote: “In order to further the underlying goals of the Commission proposals, a majority of the IAC believes that more can and should be done to strengthen and clarify these proposals.”

Specifically, a majority of the IAC says:

The best interest standard is, and should be characterized explicitly as, a fiduciary duty, while making clear that the specific obligations that flow from that duty will vary based on differences in business models;

The standard for broker-dealers and investment advisers alike should be clarified regarding the obligation to act in customers’ best interests;

They support expanding the best interest obligation to cover rollover recommendations and recommendations by dual registrant firms regarding account types; and

Before adopting the disclosure obligations, the Commission should conduct usability testing of the proposed Form CRS disclosures and, if necessary, revise them to ensure that they enable investors to make an informed choice among different types of providers and accounts.

The SEC, in the text of its Regulation Best Interest proposal, detailed concerns with an explicit fiduciary promise: “A fiduciary standard for broker-dealers could produce greater uniformity between broker-dealers’ and investment advisers’ standards; such uniformity could lead to the potential loss of differentiation between two important business models, each of which can serve a valuable function for retail customers.”

“While we share the Commission’s view that the best interest standard should not be turned into a one-size-fits-all, prescriptive rule, we believe the basic meaning of best interest should be clarified when the Commission moves forward with its rulemaking, without abandoning the principles-based approach favored by the Commission,” the IAC wrote in its recommendations. “A majority of the Committee believes it is possible to preserve beneficial differentiation between the investment advisory and broker-dealer business models while adopting a fiduciary best interest standard that is uniform in principle for both brokerage and advisory accounts but flexible in its application based on differences in business model … The Commission should explicitly recognize that the best interest obligation outlined in Regulation Best Interest is a fiduciary standard.”

Among those praising the IAC’s recommendations is Heather Slavkin Corzo, a senior fellow at Americans for Financial Reform. “What we heard from the diverse membership of the SEC’s own advisory committee is that they share our view that the proposed Regulation Best Interest would not protect investors,” she said. Her advocacy group “has called on the SEC to instead pass rules that make clear that brokers have a legal obligation to act in the best interests of their clients.”

“Only a tough standard of conduct for brokers can protect millions of investors in the United States saving for retirement, their children’s educations, or a more secure future,” Corzo added. “The SEC has the important job of protecting everyday investors. It needs to improve the rule so that it genuinely does that, not one that provides a dangerous veneer of protection that only leaves people more at risk.”

Meanwhile, a new report, commissioned by the SEC and made public this week by its Office of the Investor Advocate, might assist “ongoing efforts to help address investor confusion about the nature of their relationships with investment advisers and broker-dealers.”

The research was conducted by RAND Corp. It gathered feedback on a sample Relationship Summary proposed by the SEC as part of Regulation Best Interest. To address investor confusion about the nature of their relationships with investment professionals, the SEC proposed a new short-form disclosure document—a customer or client relationship summary, or CRS.

Form CRS would provide retail investors with “easy-to-understand information about the nature of their relationship with their investment professional” and would supplement other more detailed disclosures. The summary to clients and customers would inform them about the relationships and services the firm offers, the fees and costs associated with those services, and conflicts of interest the firm might have.

RAND’s 156-page research report was intended to help the SEC craft its advice-standards package.

“Based on my discussions with many retail investors over the last several months, it is clear to me that too many retail investors are not aware of the material aspects of their relationships with their investment professionals,” said SEC Chairman Jay Clayton. “The results of [the] investor testing support our efforts to provide retail investors with a clear and concise Relationship Summary to help them make important decisions about choosing to work with an investment professional.”

Financial professionals who provide investment advice to individual investors include broker-dealers, investment advisers, or professionals who are dually registered as both. “However, past research has shown that investors are confused about how these types of financial professionals differ in terms of services offered, fees charged, and legal standards and obligations,” the RAND report says.

Of the 1,816 individuals who were invited to complete the online interview, 1,460 completed the survey,

The firm collected information on the “opinions, preferences, attitudes, and level of self-assessed comprehension” regarding a sample Relationship Summary. An online questionnaire asked respondents to read a sample of such a report for a fictitious, dually registered advisory firm. They were then asked to provide their opinions and to assess their level of comprehension.

Survey questions covered the following subject areas:

Opinions about the length, importance, and ease of understanding of each section;

Preferences on the format and delivery of the summary, such as the question-and-answer format and side-by-side comparisons; and

Opinions about the usefulness of the Relationship Summary in comparison to longer documents (such as an investment adviser’s Form ADV or a broker-dealer’s account opening agreement).

Survey respondents expressed generally positive assessments of the format and content of the sample summary. Nearly 90 percent said it would help them make more informed decisions about investment accounts and services.

Nevertheless, interviews revealed that there were areas of confusion, especially regarding differences between types of accounts or financial professionals.

Nearly all respondents who reported that they would be likely to read any documents when choosing a financial professional or account type reported that they would read the Relationship Summary, alone or in addition to other documents. Information on fees and costs were viewed as potentially offering investors the most help.

“The current ‘fees and costs’ section is the most likely to be selected as one of the two most informative sections by survey respondents, yet it is also the most likely to be found to be difficult to understand in its current form,” RAND concluded. “Interview participants felt that the section was overwhelming, but at the same time could benefit from adding details about possible fees for the client.”

The SEC is soliciting public feedback on the report, setting a deadline of Dec. 7.

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