Finding A Way.

Stoking the Fiduciary Fire: Debate Over Broker Oversight Heats Up

Equity fund lawyer NYCThe debate over the fiduciary standard is rearing its head again, and my prediction is, will do so in the foreseeable future—should investment advisors and brokers-dealers be held to one and the same fiduciary standard and, if yes, what should that standard be?

Seven leading consumer and financial industry organizations recently submitted a plan to the Securities and Exchange Commission (SEC) that outlines a compromise to create a uniform standard in an attempt to make some headway. As we said in previous posts regarding the potential new fiduciary standard, Section 913 of Dodd-Frank required the SEC to examine the effectiveness of the current standards of care applied to professionals who offer investment advice to consumers

While the debate has been heated, there has not been a lot of progress on the creation of a new rule. The compromise that was submitted in a letter from the Consumer Federation of America, Fund Democracy, AARP, Certified Financial Planner Board of Standards, Inc., Financial Planning Association, Investment Adviser Association, and the National Association of Personal Financial Advisors, was in response to a July 2011 letter from the Securities Industry and Financial Markets Association (SIFMA) that seemed to propose the introduction of a new standard.

In front and center of the letter seems the plea not to re-invent the wheel.  So it says: “We write as organizations that strongly support extension of the Investment Advisers Act of 1940 fiduciary duty to all broker-dealers when they offer personalized investment advice about securities to retail customers.”

The groups argue that the Advisers Act fiduciary duty is sufficiently flexible to apply to a variety of business models. The letter specifically states, “The goal in writing the new rules should be to extend the existing Advisers Act standard to brokers, while clarifying its applicability in the context of broker-dealer conduct, rather than to replace the Advisers Act standard with something new and different.” I whole-heartedly agree.  Why would we?  Stay tuned.

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