Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Industry Spotlight > Broker Dealers

Fiduciary Issue Comes to Fore in Goldman Hearings

Your article was successfully shared with the contacts you provided.

The Subcommittee on Investigations of the Senate held a hearing in which current and former Goldman Sachs employees–including the CEO and CFO–testified. Advisors and industry officials are waxing optimistic that the April 27 Senate hearing in which a number of Goldman Sachs officials were grilled is boosting the chances that a final Senate bill will include a fiduciary duty for brokers, as several Senators on the Subcommittee on Investigations of the Senate Homeland Security Committee pointed to Goldman’s apparent lack of adherence to a fiduciary standard.

“I think the whole hearing was a presentation of how Goldman views the fair dealing/suitability standard,” says Knut Rostad, chairman of the Committee for the Fiduciary Standard. Rostad points to comments made by Senator Susan Collins (R-Maine), which zeroed in on the fiduciary standard, when she asked each of the first four Goldman witnesses–Daniel Sparks, Josh Birnbaum, Michael Swenson, and Fabrice Tourre–whether they had a “duty to act in the best interest of your clients.” Sparks, Swenson, and Tourre replied their duty was to “serve our clients.” Birnbaum, alone, Rostad points out, said: “I believe that we did.”

After hearing from all six of the panelists from Goldman, Rostad notes that Senator Carl Levin (D-Michigan), chairman of the Senate Government Affairs Subcommittee on Investigations, concluded that although Goldman claims to always put clients’ interest first, “You don’t; you (often) put your own interest first.”

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.”


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.