GAME OF DRONES

Uniform Fiduciary Standards Moving Forward
A
great debate over fiduciary standards (the legal
duty to act solely in another party’s best
interest) – and their impact on consumers,
broker-dealers and investment advisers – has
been raging ever since the confidence-shattering
2008 financial meltdown.
In the summer of 2013, the Securities and Exchange Commission
fielded suggestions and comments from industry
professionals regarding the possibility of initiating a uniform
fiduciary standard. Wall Street’s regulatory board
was prompted by numerous studies revealing the fact that
a great many retail investors are confused by the different
roles played by investment advisers and brokers. Additionally,
calls from myriad consumer groups for this type of uniform
standard continue to rise.
Both the SEC and the Financial Markets Association, the
main lobbying group for Wall Street firms, oppose such a
recommendation, citing legal headwinds. Such a move aims
to apply to brokers laws written for investment advisers.
The organizations’ endorsement is for brokers – who give
customers recommendations to buy, sell or hold a security
but don’t provide advice – not to be held to a fiduciary duty.
Brokers would only have to comply with the less stringent
standard of investment suitability. Meanwhile, those who
hold themselves out as investment advisers, “based either
on the titles they use or the manner in which they market
their services” should have a fiduciary duty.
The big push for a uniform standard is mainly coming
from investment advisers, who pride themselves on acting
out of duty and loyalty. They claim that, during the process
of executing orders for customers, brokers can actually wind
up providing advice, and thus should be held to the same
strict standards that they themselves follow. Independent
advisers have long worried that their so-called fiduciary
standards could be diminished or diluted by the actions of
brokers. Brokers fear they won’t be able to sell mutual funds
without falling under tougher standards, even when dealing
with customers who merely want to execute an investment
transaction and are not looking for investment advice.
The primary goal, regardless of the outcome, is to prevent
abusive sales practices.
Just before Thanksgiving, the Investment Advisory Committee,
which is advising the SEC on the regulation of securities
products, unanimously voted to recommend that the
SEC set a uniform fiduciary standard for most brokers and
registered investment advisers for acting in the best interest
of their clients whenever they give financial advice. While
the vote doesn’t mean that the SEC will adopt the IAC’s recommendation,
it is a big step in that direction. With Wall
Street’s reputation sorely sullied from the financial crisis,
the Bernie Madoff Ponzi scheme and the Allen Stanford
scandal, a uniform fiduciary standard would definitely add
some sorely needed improvement to the industry’s image.
THE SUIT MAGAZINE - DEC / JAN 2014