Call for Papers: Applying the Fiduciary Standard in a Brokerage Setting

Select papers may be published in Boston University Review of Banking & Financial Law or presented to SEC

More On Legal & Compliance

from The Advisor's Professional Library
  • Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIA’s failure to stay within the scope of the Section 28(e) safe harbor may violate the advisor’s fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients’ transactions.
  • Advertising Advisor Services and Credentials Section 206 of the Investment Advisers Act contains the anti-fraud provision of the statute and ensures that RIAs’ advertising and marketing practices are consistent with the fiduciary duty owed to clients and prospective clients.   
As President Barack Obama on Wednesday, July 21, signed the most sweeping financial reforms law since the Great Depression, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Boston University Review of Banking & Financial Law and The Committee for the Fiduciary Standard announced a "call for papers" to address applying the fiduciary standard to brokers who provide advice to individual investors.

The Dodd-Frank bill requires a number of studies by regulators, including a six-month SEC study of whether brokers who provide advice to individual investors should have to put those investors' interests ahead of their own. If the SEC concludes that it is necessary after the study, it can adopt rules mandating that brokers who provide advice to investors do so under the fiduciary standard, as investment advisors do, under the Investment Advisers Act of 1940.

The groups are calling for papers "from scholars, researchers, practitioners, and professionals for 1,250- to 4,000-word paper contributions to an issue slated for publication during the Fall of 2010. This issue focuses on the application of fiduciary duties to the delivery of investment advice as potentially impacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Completed manuscripts are due not later than August 31, 2010."

Fiduciary duty--the duty of loyalty--is not new. Investment advisors, who are regulated under the Investment Advisers Act of 1940, are already required to conduct themselves according to 70 years of settled law regarding their fiduciary duty toward investors. Fiduciary duty, based on 800 years of common law, is the highest duty in law.

"The importance of research-based analysis founded in the law cannot be overstated," Knut A. Rostad, chairman of the Committee for the Fiduciary Standard, told WealthManagerWeb.com. The Committee is a group of more than 800 practitioners and leaders from the investment industry that advocates for the fiduciary standard on behalf of investors. This editor is a member of the Committee.

"The SEC is under huge time and resource pressures to complete numerous studies required by the reform legislation. We believe research-based papers from scholars and practitioners on key issues around the delivery of investment advice in a brokerage setting will be very helpful," Rostad said in the release.

Papers should have, "An emphasis on the purpose, function and parameters of the fiduciary standard of conduct under the Investment Advisers Act of 1940, contrasts with state common law, as well as their application to investment advisers, and its potential application to the investment advisory activities of broker-dealers, is desired. Economic analysis of the issues, including the application of behavioral research, is also requested," according to the call for papers document.

In addition to publication of select papers in the Review, the Committee for the Fiduciary Standard will select papers that "are likely to provide substantial assistance to the SEC (regardless of the point of view expressed) will be assembled by The Committee for the Fiduciary Standard and submitted as a group to the SEC in early September 2010."

In addition, The Committee may hold a Public Policy Conference early this fall. If so, the location and date for the conference will be announced by August 20, 2010. "Select authors will be invited to present their papers and/or participate in panel discussions. This Conference will address current issues in the regulation of investment advice, with an emphasis on understanding fiduciary standards of conduct, for the purpose of providing valued input to policy makers."

Papers should be submitted by August 31. Please e-mail any questions and all papers to: fiduciary.papers@gmail.com

Read more about the financial reform bill: marketplace winners and losers; impact on advisors, broker/dealers, and banks; the fiduciary standard for brokers; and the history of financial reform.

Comments? Please send them to kmcbride@wealthmanagerweb.com. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.

Reprints Discuss this story
This is where the comments go.