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Retirement Planning > Social Security

Schapiro's Call for Fiduciary Standard Reflects SEC's Original Mandate

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who serve investors

It is time. Time to retire the phrase “caveat emptor” or “buyer beware” when it comes to giving advice to individual investors. That phrase may be appropriate for institutional investors and even where there is a self-directed individual investor–not receiving advice–or a clear relationship with a salesperson–titled and disclosed as such. But not where the professional is deemed “advisor.” This editor is a member of The Committee for the Fiduciary Standard, a volunteer group which has called for the authentic fiduciary standard to be preserved in new legislation and regulation, and has been meeting in Washington with government, agency and advocacy groups interested in all sides of this issue.

“Tempted by promises of ‘rags to riches’ transformations and easy credit, most investors gave little thought to the systemic risk that arose from widespread abuse of margin financing and unreliable information about the securities in which they were investing.”

“There was a consensus that for the economy to recover, the public’s faith in the capital markets needed to be restored. Congress held hearings to identify the problems and search for solutions.”

“People who sell and trade securities–brokers, dealers, and exchanges – must treat investors fairly and honestly, putting investors’ interests first.”

While the quotes above could appear in any publication today, they are actually from the SEC Web site’s section on “Creation of the SEC,” defining the agency’s mandate when it was formed through the Securities Exchange Act of 1934. It “was designed to restore investor confidence in our capital markets,” the Web site explains. Sound familiar?

Eerie echoes of that resonate in the Capitol today, with sweeping bills proposed by the House and Senate that mandate the fiduciary standard of care for all securities and financial professionals who provide advice to investors. The Senate’s proposal requires that all who provide advice to investors register as investment advisers and be regulated under Investment Advisers Act of 1940. The house bill does not require such registration but does mandate that advice providers be fiduciaries.

“We need to have a strong fiduciary standard for all securities professionals,” SEC Chair Mary L. Schapiro said in a December 3 speech to the Consumer Federation of America’s 21st Annual Financial Services Conference in Washington. “I believe that all securities professionals should be subject to the same fiduciary duty–and that all investors receiving advice should rest assured that the advice they get is being given with their interest at heart.”

“But,” Schapiro continued, “to be effective, the fiduciary duty needs to be meaningful and uniform across all securities professionals. It cannot be weakened or diluted just so that it can be applied broadly.”

These are very important words, and they provide a glimpse at the evolution of the Chairman’s thinking when it comes to putting investors first. In speeches and interviews from as far back as 2003, and possibly further, the Chairman has spoken of putting investors first, but what she is saying now is the clearest and strongest expression of this call for a fiduciary duty for all professionals who serve investors. The question remains: is the Chairman calling for application of the Investment Adviser Act of 1940 for all who provide advice to investors? It is the fiduciary model that has worked, and it is a business model that is profitable, with well-defined principles and precedent in law.

Next: What else is needed to protect investors?

Comments? Please send them to [email protected]. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.

Read more Wealth Manager: Viewpoint blog posts:

Mr. Dodd’s Message from Washington November 16, 2009 Now that we have heard from both the House and Senate committees on finance and banking about investor protection, let’s not misinterpret what they are saying. Can the DJIA at 10,000 Inspire “Animal Spirits?” October 16, 2009 The Dow Jones Industrial Average hit a year-to-date high and jumped above 10,000 on Oct. 14, and the next day hit another high of 10,062.94. Unless you are short, this is good news for you and for your clients. “Federal” versus “Authentic” Fiduciary Duty October 08, 2009 Both investment advisors and broker/dealer registered representatives routinely give financial and investment advice to clients. What is still different is the rules that protect those investors….


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