The Securities and Exchange Commission has announced a proposal to temporarily extend a rule that facilitates certain proprietary trading by entities that are registered as both broker-dealers and investment advisers. The proposed extension would move Rule 206(3)-3T’s expiration date by two years, from December 31, 2010 to December 31, 2012. It would also would allow the SEC to complete a study mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Rule 206(3)-3T gives dually registered firms another way to satisfy consent and disclosure requirements that they would otherwise only be able to meet on a transaction-by-transaction basis. Having just the one option would limit the availability that non-discretionary advisory clients would have to certain securities.
The extension would give the SEC the time that it needs to study the regulatory issues related to dual registrants’ principal trading. Dodd-Frank is requiring the SEC to look at any divergent regulations between investment advisers and brokers and use rulemaking to fix gaps so as to better protect investors. The agency has until January 21, 2011 to notify Congress of its findings.
Dodd-Frank’s Section 913 has generated a lot of debate because it could allow for most broker-dealers to be considered fiduciaries under the 1940 Investment Advisers Act. Right now, brokers don’t have to meet the fiduciary standard that investment advisers must satisfy even though both offer similar services. However, instead of holding brokers to the statutory fiduciary standard, the SEC might end up obligating them to fulfill various consent and disclosure requirements at the start of a retail relationship.
Shepherd Smith Edwards & Kantas LTD LLP Founder and Securities Fraud Attorney William Shepherd thinks that it is time to hold brokers responsible to a fiduciary standard: “The only educational requirement to become a licensed securities broker is four months of on-the-job training and the passing of a half-day test. Yet, on average, securities brokers at major firms are paid more than doctors, lawyers and other professionals who must often attain seven or eight years of higher education. Many clients entrust securities brokers with their life savings, retirement assets, and their financial life blood. Why shouldn’t these brokers and the firms required to supervise them be held responsible if the investors are ripped-off? Financial advisers perform the same function but have a fiduciary duty to investors, simply meaning they must put the client’s interest first when advising them. Why should securities brokers be held to a different standard and not be allowed to lull investors into trusting them, while selling their victims the highest commission products that they can find without regard to the client’s best interest? In fact, most state laws currently hold that when a broker is recommending securities to an unsophisticated investor, the broker has a fiduciary duty to that client. What the SEC is trying to do is to pass a rule that makes brokerage firms LESS RESPONSIBLE than they are at present. These endless tactics perpetrated by securities regulators, at the behest of Wall Street, and are yet another type of bail-out move by the Securities Cartel that controls this nation.”
Related Web Resources:
Read the Proposed Rule (PDF)