Investor Protection As Political Football


The House Financial Services Committee under Republican Chairman Spencer Bachus rejected a proposal to increase the SEC’s budget by 18.5 percent to $1.56 billion to pressure the SEC to back down on its recommendation to impose a fiduciary duty standard on broker-dealers. Congressional Republicans tried to justify their rejection of the needed funding by pointing to the SEC’s failures to prevent the Madoff ponzi scheme and other scandals. Republicans also criticized the SEC’s supposed failure to provide adequate justification to back up its recommendation to impose the fiduciary duty standard on Wall Street.

But Republican criticism of the SEC is just political spin; they are really digging in their heels against the fiduciary duty standard, according to Mr. Clark. (“What’s Behind Congressional Freeze on SEC Funding,” by Bob Clark, AdvisorOne).

The Dodd-Frank law passed by Congress required the SEC to consider and report to Congress its recommendation on the fiduciary duty standard. The SEC conducted a study and submitted it to Congress along with its recommendation. “Had the SEC failed to submit the required fiduciary study (along with a score of more of other in-depth studies mandated by Dodd-Frank), would the Bachus committee then have denied increased funding for failure to comply?”

As fiduciaries, broker-dealers would essentially be required to put their clients’ interests ahead of their own, as registered investment advisors do, and as many customers believe securities brokers already do now. The securities industry (SIFMA) and their Republican champions do not want broker-dealers to be under a fiduciary duty. They want broker-dealers to be free to advertise in a way that creates the impression they are fiduciaries, and then take the position that they are mere order takers when they are sued for breach of fiduciary duty.

Besides, Clark says, it makes no sense to claim to be punishing the SEC for doing a bad job when part of the reason why it did a bad job was insufficient funding and resources. (The other major reason is the revolving door between top SEC executives and Wall Street).

No, the reason behind the Republican funding freeze is simply that House Republicans “like SIFMA, don’t support a fiduciary standard for brokers, and they intend to use their control over the purse strings to bring the SEC into line.” As a captive of Wall Street, the SEC is used to being brought back into line, and that does not bode well for imposing a fiduciary duty standard on broker-dealers.

Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.