Fiduciary Issue Comes to Fore in Goldman Hearings

Collins, who also sits on the Senate Appropriations Subcommittee on Financial Services, told SEC Chairman Mary Schapiro during her testimony on Wednesday, April 28, that Goldman executives did, indeed, “dance around” the fiduciary-related question that were posed to them. Collins then asked Schapiro if a fiduciary duty should apply to brokers. Schapiro replied: “It absolutely should,” adding that while the SEC has talked about the importance of the fiduciary issue applying to brokers in a retail capacity, as it stands now “the [fiduciary] duty does not exist on the broker/dealer side. I’m hopeful that the Senate bill will emerge with that provision in place.”

Rostad says that “the [fiduciary] principles are the same and the practices are the same” at both the institutional and retail levels. “As it becomes clear that there’s going to be a strong group of Republicans who are going to support the [financial services reform] bill, at the end of the day it will give greater momentum to support of the Akaka/Menendez amendment,” which would replace Section 913 of Senator Dodd’s financial services reform bill, the Restoring American Financial Stability Act, asking for an SEC study of broker/dealer and advisor obligations with the House reform bill’s provision requiring brokers to adhere to a fiduciary duty. (link to IA’s story on this amendment)

Indeed, David Tittsworth, executive director of the Investment Adviser Association (IAA) in Washington, says IAA’s “position has been that investment advisors under the Investment Advisers Act owe a fiduciary duty to all of their clients, whether they are institutional or retail or however you define them. We’ve said, ‘Don’t weaken or water down the current [fiduciary] duty and don’t apply a different duty to different types of clients.”