WASHINGTON BUREAU — The Senate Banking, Housing and Urban Affairs Committee apparently will use a standard of care amendment backed by the life insurance industry in the new financial services reform draft it is developing.
The proposed amendment calls for the U.S. Securities and Exchange Commission to study the standards that apply, and should apply, when personalized investment advice is given to retail customers, rather than automatically applying the same “fiduciary standard” both to broker-dealers and to investment advisors.
The SEC would have to report on its findings within 18 months, and it could develop rules based on the findings, if it concluded that there were regulatory gaps and overlaps in existing rules.
The staff of Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, released a draft financial services reform bill in December 2009 with a provision, Section 913, that would apply the fiduciary standard to broker-dealers as well as to investment advisors.
Investment advisors already use the fiduciary standard of care, which requires them to act solely in the interest of the customer.
Broker-dealers and their representatives must ensure only that the products they sell to customers are suitable for those customers. Insurance agents who represent broker-dealers often have contracts limiting them to selling products from one company, or a few companies, and they have argued that there is no practical way for them to comply with a fiduciary standard.
Representatives for the Consumer Federation of America, Washington, and the Committee for the Fiduciary Standard, Rumson, N.J., which represents financial planners, say the revised bill coming out next week will leave out the universal fiduciary care standard included in the December draft.
Sens. Timothy Johnson, D-S.D., and Michael Crapo, R-Idaho, are sponsoring the proposed standard of care amendment.