WASHINGTON BUREAU — The National Association of Insurance and Financial Advisors is trying to change a fiduciary standard provision in a major new financial services reform bill.
The provision, part of the Investor Protection Act of 2009, would apply to sales of securities. It is “so difficult and rigorous” that few NAIFA members could meet it, according to NAIFA, Falls Church, Va.
The full House Financial Services Committee will hold a hearing on the proposed bill Tuesday. The draft, based on an outline sent to the committee in July by the U.S. Treasury Department, was unveiled Thursday by Rep. Paul Kanjorski, D-Pa.., chairman of the committee’s Capital Markets Subcommittee.
Hearing panels will discuss 3 components of the Obama administration’s “capital markets regulatory reform” proposals: investor protection; oversight over private pools of capital; and creation of a National Insurance Office.
Officials say they want the investor protection provisions to eliminate “consumer confusion” about the standard sellers of securities products must use when selling products to consumers, by establishing consistent standards for those who sell financial products to investors.
The investor protection provisions would harmonize conduct requirements; control some sales practices, compensation schemes and other arrangements, and give the U.S. Securities and Exchange Commission authority to prohibit or restrict use of mandatory pre-dispute arbitration in sales contracts, according to an analysis released by Morrison & Foerster L.L.P., San Francisco, a law firm.
Proposed changes in the federal Advisers Act and the federal Exchange Act would authorize the SEC to require that broker-dealers and investment advisors be held to a fiduciary standard.
Under that standard, broker-dealers and advisors would have to “act solely in the interest of the customer or client without regard to the financial or other interest of the broker, dealer or investment adviser providing the advice,” when providing investment advice to retail customers or clients, according to the Morrison & Foerster analysts.
Bruce Maisel of Thrivent Financial for Lutherans, Minneapolis, will represent the American Council of Life Insurers, Washington, at the Financial Services Committee hearing.
NAIFA officials will not get to speak at the hearing.
But NAIFA President Thomas Currey says he wants to make it clear that the proposed IPA fiduciary standard provision is “simply unreasonable and unworkable” from the perspective of NAIFA members.
According to Currey and other NAIFA officials, the Kanjorski version softens the primary thrust of the administration proposal, which called for those people selling securities to do so “solely in the interest of their clients.”
Currey said most NAIFA members earn the predominant share of their livelihood by selling commission-based products.
“They would have difficulty acting ‘solely’ in the interest of their clients,” as proposed by the Obama administration, Currey said.