End Game to the Fiduciary Issue?
By Bob Clark
Okay, so I may have been a bit overly optimistic with my assessment of the Johnson amendment (February 22, 2010 blog). But it happens so rarely these days, I have to admit, it felt kind of good. But reality has reared its head to bite me on the keister, and things aren't looking nearly as good for the fiduciary standard this week as they were last week.
For those you who might have missed it, what with all the lollapalooza about the Olympics, the healthcare summit, and Tiger Wood's press conference, the fiduciary duty for brokers has been dropped from financial services re-regulation. It seems that the amendment introduced two weeks ago by Sen. Tim Johnson (D-South Dakota)--which would replacing a fiduciary standard now in the legislation with a study of the practicality of such a standard--has been added to the Senate version of the reform bill. That means neither the House nor the Senate versions of financial services re-regulation contains any change in the current fiduciary status quo.
As the Obama Administration initiated the call for an omnibus fiduciary duty for all financial advisors in a white paper issued about this time last year, we might expect it to step up and champion the idea now. But with much of its political capital spent on the battle over healthcare reform, the White House may have neither the heart nor the political muscle left to take on Wall Street (or its new banking masters). With the Dodd financial services reform bill sans a broker fiduciary standard slated to be introduced in the Senate Banking Committee this week, it looks like the advocates of a comprehensive fiduciary duty are on the ropes.
Last Thursday, one of those advocates, The Committee for the Fiduciary Standard, issued a press release, calling on members of the Banking Committee to "not delete the pro-investor cornerstone of Wall Street reforms, reinstate the fiduciary provision... ...and reject a provision to 'study' the issue." In addition to pointing out the Johnson amendment doesn't call for anything that hasn't already been studied by the SEC, the teeth of the Committee's objection comes from its joint survey with SEI Advisor Network showing brokers themselves favor adopting a fiduciary duty, 2 to 1 (53% to 27%).
I hope the Senate is listening, but I'm not nearly as optimistic about that.