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Educator Blasts RASFA Fiduciary Responsibility Section

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WASHINGTON BUREAU — The U.S. Securities and Exchange Commission should study investment advisors and broker-dealers carefully before trying to revamp fiduciary responsibility rules, according to American College President Laurence Barton.

Barton makes the case in a letter sent Monday to members of the Senate Banking Committee.

The committee is considering the Restoring American Financial Stability Act of 2009 bill draft, which was developed by Sen. Christopher Dodd, D-Conn., the committee’s chairman.

Barton urges lawmakers to replace the current language in Section 913 of the current version of the draft with language requiring a “full SEC report” that would provide clear legislative recommendations, “along with a detailed picture of the consequences of various courses of action.”

Trying to “harmonize” the obligations of advisors and broker-dealers without understanding the differences between their roles would be a mistake, Barton writes.

“Your approach in [Section] 913 of eliminating the exclusion for brokers and dealers from the Investment Advisers Act of 1940 may seem simple, but by adopting it, you fall into the same trap that the House Financial Services Committee narrowly averted,” Barton writes.

“It’s one thing to harmonize standards at a fiduciary level when brokers, dealers and investment advisers are providing the identical service of offering advice for a fee about securities,” Barton writes.

The difficulty is that brokers, dealers, and investment advisors, while having some overlap in services, are not the same, Barton writes.

Barton says implementing Section 913 has written could hurt distribution systems and consumer access for certain products, such as variable life insurance; could impose additional expenses on providers, “ultimately resulting in added costs passed on to lower and middle-market consumers”; and could “significantly” decrease the number of financial advisers.

Dodd has reopened talks about the RAFSA draft in the hope getting a bipartisan version ready for committee action before Congress leaves for the Christmas recess.

The provision that Barton writes about in his letter would give the SEC discretionary rulemaking authority to harmonize the standard of care that investment advisors and brokers and dealers must provide to their customers when selling investment products.

Section 913 in the RAFSA draft is similar to a provision in H.R. 3817, the Investor Protection Act.

Agents’ groups have persuaded lawmakers to make some changes in H.R. 3817, especially in a section concerning a proposed safe harbor for insurance agents, but they say they still have concerns about it.

The House Financial Services Committee approved H.R. 3817 Nov. 4, and the bill could come up for a vote on the House floor early this month.


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