The Battle Over a Fiduciary Standard Heats Up


Concerned that securities industry zealots and a Republican Congress will succeed in delaying an SEC rule that would require brokers who provide retail investment advice to act solely in their client’s best interest, investor advocates are stepping up their campaign to urge the SEC to move forward with a rule, according to an InvestmentNews article by Mark Schoeff, Jr. entitled “Fiduciary advocates make push for new rules.”

Congress authorized the SEC to promulgate a fiduciary duty regulation after completing a study. The SEC completed its study and, in January, recommended that broker-dealers be subject to the same standard of care as investment advisers ? acting in a client’s best interests ? in order to protect investors from conflicted advice.

The two SEC Republican commissioners ? Kathleen Casey and Troy Paredes ? dissented ostensibly on the ground that a “stronger analytical and empirical foundation” was needed to ensure that investors would not be harmed by the fiduciary duty standard requiring that brokers act solely in their best interest.

House Financial Services Committee Republicans then asked the SEC to delay issuing a fiduciary rule until after the agency had conducted a cost benefit analysis. Last week, Senate Banking Committee Republicans joined their House colleagues seeking the delay.

Fueling concerns that the SEC might buckle, SEC Chairman Mary Schapiro said the agency would “explore the possibility of rulemaking” sometime after July 21, the first anniversary of Dodd-Frank. “In the meantime,” Ms. Shapiro was quoted as saying, “I’ve asked our economists to try to gather as much economic data as possible to help inform whatever rule we propose.”

It is a delaying tactic, and “[i]t’s an excuse for being opposed to it,” Rep. Barney Frank, D-Mass. was quoted as saying.

Barbara Roper, director of investor protection for the Consumer Federation of America, was quoted as saying: “Unfortunately, a relatively small but highly vocal portion of the broker-dealer community continues to attack the SEC proposal on the grounds that it would harm middle-income and rural investors. ‘ We are concerned that arguments with so little basis in fact appear to be persuading some members to advocate a go-slow approach on this top protection priority for retail investors. ‘ An effectively enforced fiduciary duty could save investors tens of billions of dollars a year in excess costs and reduced payouts by forcing brokers to make recommendations based on the best interests of the investor rather than their own bottom line.”

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