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ACLI Addresses Fiduciary Issue

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WASHINGTON BUREAU — Requiring insurance agents to act solely in the interest of their customers when selling securities products would be “counter to serving the investing public’s needs,” a representative of the American Council of Life Insurers testified at a House hearing today.

“Such a concept is also at odds with the historical practices regarding securities distribution in which a broker-dealer enters into a contractual arrangement with a securities issuer to offer such securities for sale,” Bruce Maisel, general counsel of Thrivent Financial for Lutherans, Minneapolis, said at a House Financial Services Committee hearing.

The committee spent part of the hearing talking about the Investor Protection Act bill draft.

Rep. Paul Kanjorski, D-Pa., the author of the bill, hopes to apply consistent standards to sellers of similar types of investment products.

Another provision would give the U.S. Securities and Exchange Commission the authority to adopt rules that limit or bar the inclusion of mandatory arbitration clauses in securities contracts.

That provision drew fire at the hearing from Republicans. Rep. Spencer Bachus, R-Ala., the highest-ranking Republican member on the panel, said the provision ”could substantially increase dispute-resolution costs for investors and compliance costs for firms.”

The provision also would double the agency’s budget over the next 5 years, Bachus said.

Kanjorski, chairman of the Financial Services Committee’s capital markets subcommittee, said the bill would enhance the SEC’s “firepower,” then added that doing that and providing more money “are simply not enough.”

As a result, he said, “the draft bill calls for an independent, comprehensive study of the entire regulatory structure that oversees the securities industry by a high-caliber body with expertise in organizational change that will identify further improvements to the implementation of our securities laws.”

In his testimony on behalf of the ACLI, Washington, Maisel argued that the goal of harmonizing the standard of conduct for broker-dealers and investment advisors who provide personalized securities advice must be tailored “to reflect and preserve the various types of relationships that exist between a broker-dealer or investment adviser and the retail investor.”

By doing so, he said, “investor choice will also be preserved.”

ACLI members believe that the harmonized standard and any subsequent rules promulgated by the SEC “must, as similarly noted above, take in to consideration that broker-dealers and investment [advisors] (and their respective securities licensed representatives) typically may only provide investment advice about the particular securities that are available through their respective firms,” Maisel said.

He argued that, in many cases, it is “ultimately unknowable whether investment advice is influenced by any self-interest.”

Maisel also expressed concerns about a bill draft provision that would require that a salesperson act “without regard to” the financial interest of the broker-dealer or investment advisor. The provision could be construed so broadly that it effectively would require that no compensation be paid, or that there could be absolutely no differences between compensation levels for different types of products, he said.

“These issues are best left to effective, robust and timely disclosure, as has been the historical practice under the Advisers Act,” he said.

But creating a fiduciary duty for those offering investment advice was supported by Denise Voigt Crawford, Texas securities commissioner and president of the North American Securities Administrators Association Inc., Washington.

The fiduciary duty mandate was also supported by John Taft, head of U.S. Wealth Management at RBC Wealth Management and chairman of the private client group steering committee at the Securities Industry and Financial Markets Association, Washington.

“SIFMA agrees with Mary Shapiro, SEC chairman, that the term personalized investment advice appropriately identifies the common business activity that broker-dealers and investment advisers provide individual investors, and that should be the subject of a federal standard of care,” Taft said.

He said SIFMA is proposing creation of a federal fiduciary standard that is exclusive and that supersedes and improves upon the current state common law-based fiduciary standards applicable to investment advisors for the benefit of individual investors.

SIFMA does not propose to modify the current state common law-based standards applicable to the delivery of investment advice to the institutional clients of investment advisers, he said.

David Tittsworth, executive director of the Investment Adviser Association, Washington, also voiced “strong support” for the fiduciary standard.


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