Saratoga--Not Yorktown

There can be no doubt the final agreement between House-Senate conferees regarding the fiduciary standard is a decisive victory for investors. Against a massive lobbying effort spearheaded by some of the country's most influential insurance groups, House conferees won major points in the final agreement.

After a six-month study (originally it was 18-months), the SEC will have authority to develop rules "with respect to a broker or a dealer," regarding a standard of conduct that is the "same as the standard of conduct applicable to an investment adviser under Section 211 of the Investment Advisers Act of 1940." Further, the SEC is directed to "facilitate the provision of simple and clear disclosures" and to "examine and where appropriate, promulgate rules prohibiting or restricting certain sales practices, conflicts of interest."

This is no Disney movie. There are significant carve-outs and limitations in the legislative language; SEC rulemaking is permitted, not required. There is no definitive timeline rulemaking must follow. This process can be messy and long. The campaign to make fiduciary advice accessible to all investors is hardly over.

While the awareness of and support for the fiduciary standard has likely grown in the past two years, it is not at all clear that groups with long records of adamant opposition have suddenly experienced a material change of heart. Simply because Chairman Frank and subcommittee Chair Kanjorski managed to pull out a clear win in this skirmish--with some key help from both the Obama Administration and Goldman Sachs executives--it hardly means that Wall Street firms will necessarily be starting study groups to examine John Bogle's "Fiduciary Society."

Let's not forget how very quickly SIFMA's position evolved from advocating for the two-tiered, fiduciary/suitability standards, to advocating for the "universal" standard, to today advocating for a new federal fiduciary standard it says is "more pro-investor than any other alternative we have heard advanced." (This, by the way, is the same "pro-investor" standard, according to a SIFMA spokesperson, that does necessarily not require, within the broker business model, that all fees, expenses, and compensation be disclosed.)

On April 19, 1775 when villagers gathered on Lexington Green and engaged the British troops, therein commenced six-and-a-half years before the British surrendered at Yorktown. For at least the first two-and-a-half years, the very survival of the young nation was in question. Then there was the Battle of Saratoga in September and October 1777, which proved to be a turning point in the campaign. Let's hope that June 24 was our Saratoga.

Knut A. Rostad (kar@rpjadvisors.com) is the regulatory and compliance officer at Rembert Pendleton Jackson (RPJ), a registered investment advisor in Falls Church, Virginia, and chairman of The Committee for the Fiduciary Standard. The views expressed here are his own and do not necessarily reflect views of the Committee.

Read more of Knut Rostad's Regulatory Reason blog posts:

Listening to Goldman April 28, 2010 Hearing pits Goldman's claim of pushing for clients' best interests against its own fair dealing practices. ...
What's Truth Got to do With It? January 18, 2010 As Wall Street banks announce their 2009 bonus plans, estimated by WSJ to be $145 billion, what better time is there to discuss whether Wall Street firms can win back the trust of investors?...
The Return of Investor Confidence? In 2010? December 29, 2009 A snapshot of consumer attitudes right now is not a pretty picture and suggests there is a long road to travel before investor confidence returns. ...
Partisanship on Steroids December 14, 2009 Passage of the financial reform legislation in the House is historic and important. It may also be, unfortunately, short-lived in the current, toxic partisan environment. ...
Peter Drucker for Wall Street Czar November 24, 2009 Drucker would advise Wall Street to ask what retail brokers think. About being a fiduciary, brokers might "surprise" execs. Many would say "Bring it on!"...
Too Rich or Too Thin? November 03, 2009 You can never be too rich or too thin: Can we disclose ourselves out of obesity? Can disclosures replace fiduciary duty?...
A Tail is Not a Leg October 16, 2009 As the rhetoric heats up over regulatory reform one is reminded how much political life has not changed all that much since Abraham Lincoln was quoted noting the following: "How many legs does a dog have if you call the tail a leg? Four..." ...
SEC Chairman Speaking the Fiduciary Language September 28, 2009 SEC Chairman Mary L. Schapiro's September 24th speech, before the Financial Services Roundtable, included her most recent public remarks on the fiduciary standard. The Chairman's remarks are important. ...
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