For Reform Bill, NASAA and CFA Make Last-Minute Fiduciary Bids

As conference committee readies to debate fiduciary issue on Wednesday, Senator Johnson is biggest hurdle to adoption

More On Legal & Compliance

from The Advisor's Professional Library
  • Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times.  Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
  • Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
As the House and Senate conferees ready to debate the fate of the fiduciary standard on Wednesday, June 16, industry groups are making last-ditch efforts to convince lawmakers that applying a fiduciary duty to brokers is "the single most important" consumer and investor protection in Congress's reform package. Diverse industry groups like the Financial Planning Coalition, North American Securities Administrators Association (NASAA), the Consumer Federation of America (CFA), and the Investment Adviser Association (IAA) came together to voice their support for the provision within the House version of reform which calls for brokers to adhere to fiduciary duty when giving investment advice to retail customers. The Senate version, on the other hand, requires the Securities and Exchange Commission (SEC) to study gaps and overlaps in regulation of advisors and brokers and to initiate a rulemaking at the end of that study. But as Barbara Roper, director of consumer protection for the CFA, noted on a conference call with reporters on Tuesday, June 15, the Senate bill "denies the agency [the ability] to raise the standards for brokers when they give investment advice."

Denise Voigt Crawford, Texas Securities Commissioner and president of the North American Securities Administrators Association (NASAA), said during the conference call that the House version of reform, which establishes a fiduciary duty and calls for harmonization of regulations for B/Ds and advisors, "will align the legal amendments of broker/dealers with the expectations of their clients. There is an assumption by clients that their interests are first when seeking investment advice."

It looks as though Senator Tim Johnson (D-South Dakota) is the major hurdle in getting the House fiduciary language adopted. Johnson, along with Senator Michael Crapo (R-Idaho), crafted the Senate provision calling for the SEC study, and both serve as Senate conferees.

"Because the Senate bill serves as the base text for the conference, the legislation will need to be amended if the House's more pro-investor approach is to prevail," Roper of CFA noted during the conference call. And Johnson, she said, "is in the position to caste a crucial vote on the [fiduciary] issue."

Johnson is also expected to replace Senator Christopher Dodd (D-Connecticut) as chairman of the Senate Banking Committee when Dodd retires early next year. With Johnson as head of Senate Banking, Roper said that the options of "getting a legislative fix" on the fiduciary issue, assuming the House language is not adopted, would not look good.

House Financial Services Chairman Barney Frank (D-Massachusetts), who serves as the chairman of the conference committee, released on Tuesday, June 15, on behalf of the House conferees, the House offer on investor protection, which includes the fiduciary issue, along with regulatory improvements for the SEC.

Reprints Discuss this story
This is where the comments go.