Posted On: April 14, 2012

AARP, Investment Adviser Association, Among Groups Asking the SEC to Make Brokers Abide by 1940 Investment Advisers Act’s Fiduciary Duty

Several industry and consumer groups have written a letter to the Securities and Exchange Commission asking it to put into effect a uniform fiduciary standard for both investment advisers and broker-dealers. The groups are AARP, National Association of Personal Financial Advisors, Fund Democracy, Certified Financial Planner Board of Standards, Inc., Consumer Federation of America, Financial Planning Association, and the Investment Adviser Association. They want the SEC to extend the duty as it exists under the 1940 Investment Advisers Act to brokerage industry members and not just investment advisers.

“This has been my position since the subject arose. No new definition of ‘fiduciary duty’ is warranted. For hundreds of years laws and legal decisions have fully defined the term,” said stockbroker fraud lawyer William Shepherd. “ Why should this not simply apply to Wall Street as it does the rest of us, including lawyers?”

Currently, broker-dealers have to abide by the “suitability" standard, which is considers a less strict standard of care. For example, under the suitability standard, brokers don’t have to reveal the majority of conflicts of interest to a client to get out of any obligation to control investment expenses.

Last year, the SEC recommended that its staff engage in rulemaking to create a uniform fiduciary standard. The finding was a result of a study mandated by the 2010 Dodd-Wall Street Reform and Consumer Protection Act. After the study was released, the brokerage industry started advocating for a completely new standard. Last summer, the Securities Industry and Financial Markets Association also recommended that the Commission set up a framework that is separate and distinct from the existing statutory standard.

SIFMA wants the SEC to create “detail and structure” that would let broker-dealers apply the standard according to their own business models. The securities industry trade group also recommended that key principles be tackled, including the three main principals of a uniform standard, the definition of “personalized investment advice,” clear specification regarding obligations, preservation of principal transactions, and the set up of distinct guidance on disclosure.

In their letter to the SEC, the groups said that although they were in agreement with many components of the framework that SIFMA is recommending, there are others that they strongly oppose. For example, they are concerned that the proposed framework fails to meet Dodd-Frank’s requirement for brokerage firms and investment advisers to have the same standard and that it be “no less stringent” than any standard that is already in place. They also didn’t like the recommendation that the Commission give clear guidance about disclosure for the new fiduciary framework.

Financial Planning Association, e Certified Financial Planner Board of Standards, and the National Association of Personal Financial Advisors—all adviser groups—don’t want there to be an advisor SRO, which SEC staff had recommended in another Dodd-Frank mandated study.

Our securities fraud law firm represents investors, both individual and institutional, throughout the country. Contact Shepherd Smith Edwards and Kantas, LTD, LLP today.

A Standard for Brokers, The New York Times, August 26, 2011

Investment Advisers Act of 1940, SEC.gov (PDF)

A fiduciary relationship is generally viewed as the highest standard of customer care available under law, SIFMA


More Blog Posts:
Don’t Create Uniform Fiduciary Standard for Broker-Dealers and Investment Advisers, Say Some Republicans to the SEC, Institutional Investor Securities Blog, October 7, 2011

FINRA May Put Forward Another Proposal About Possible SEC Rule Regarding Fiduciary Duty, Institutional Investor Securities Blog, November 28, 2011

SEC’s Proxy Access Rule is Rejected by Appeals Court, Stockbroker Fraud Blog, August 5, 2011