A group that includes leaders in the investment industry, The Committee for the Fiduciary Standard, has called on Congress to “adopt an authentic fiduciary standard in Wall Street reforms,” and offered “five core principles” of the fiduciary standard to help individual investors understand the differences between the investment advisors’ fiduciary standard and brokers’ “suitability standard.” (This editor is a member of the Committee.)
The five core fiduciary standard principles are:
? Put the client’s best interests first;
? Act with prudence; that is, with the skill, care, diligence and good judgment of a professional;
? Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts;
? Avoid conflicts of interest; and
? Fully disclose and fairly manage, in the client’s favor, unavoidable conflicts.
The Committee aims to raise the awareness of regular investors about the differences between investment advisors, who must abide by the fiduciary standard, putting client’s interests ahead of their own and fully disclosing and managing conflicts, and broker/dealer registered representatives who use a suitability standard which does not mandate putting client’s interests ahead of their own. Broker/dealer reps currently are bound to put their firm’s interests, not their customer’s interests, first.
To show support for the authentic fiduciary standard, the Committee is urging investors and financial industry professionals who agree with putting investor’s interests first to sign a petition registering that point of view and calling Congress to put investors’ best interests first.
And the Committee has invited two leading securities attorneys, Thomas P. Lemke, Managing Director & General Counsel of Legg Mason, Inc., and Steven W. Stone, Partner at Morgan Lewis & Bockius in Washington DC–who favor “a harmonized standard,” to debate the issue with members of the Committee.
Recently, the Obama administration (the Plan), SEC Chairman Mary L. Schapiro (speech), SEC Commissioner Luis Aguilar (speech) and Vanguard’s John Bogle have all called for the fiduciary standard for everyone who gives investment advice to individual investors.
U.S. Congressional Representatives George Miller (D-California), and Robert Andrews (D- New Jersey) have introduced a Bill, H.R.2989: 401(k) Fair Disclosure and Pension Security Act of 2009, that would mandate fair disclosure of the real costs associated with 401(k) retirement accounts, and require that advisors to retirement accounts and individual participants be fiduciaries.
On July 10, the Treasury sent “proposed legislation” guidelines to Congress for new laws that “give the SEC authority to require a fiduciary duty for any broker, dealer, or investment adviser who gives investment advice about securities, aligning the standards based on activity, instead of based on legal distinctions that are no longer meaningful.” Read the proposed “Investor Protection Act of 2009,” here.