Fiduciary Standard Back in Play in Dodd Reform Bill

“Goldman executives correctly stated their disclosure obligation was generally limited to the features of the underlying asset or investment,” said Rostad, of the advisory firm Rembert Pendleton Jackson.

“In this capacity, outside the reach of the fiduciary standard, material potential conflicts of interest, such as Paulson’s involvement, were, indeed, irrelevant, as [chairman and CEO] Lloyd Blankfein testified,” he added.

Many Advisors for, Many Insurance Agents Against

Neil Simon, a vice president for government relations at the Investment Adviser Association, said his group is hoping that the Senate adopts the Menendez/Akaka amendment.

“The issue has been studied more than enough, and it is time for all investors, whether they buy from an investment adviser or a broker/dealer, to be afforded the high level of protection afforded by the fiduciary duty standard,” he added.

But insurance agents and their associations oppose the tighter standard. They sell a limited range of investment products under a lower “suitability standard,” shared by brokers, that holds them to sell only products “suitable” to the customer.

They say it will lead to unnecessary lawsuits by people who lose money on investments as well as raise their costs.

A spokesman for the Association for Advanced Life Underwriting (AALU) said that, “We continue to believe the best way to protect retail life insurance consumers is the SEC study and directed rulemaking included in Chairman Dodd’s bill with bipartisan support.”

James Hill, an AALU spokesman, said it is premature to impose a “one-size-fits-all” federal standard on life insurance agents, who already comply with strong state and federal rules, without a clear understanding of the current regulatory regime under which they operate.

Specifically, the amendment would restore Sec. 913 to the bill reported out in late March by the Senate Banking Committee.

The provision was in the bill originally proposed by Sen. Dodd last December.

But, under pressure from the insurance industry, the provision was replaced by an amendment proposed by Sen. Tim Johnson (D-South Dakota), and Mike Crapo (R-Idaho). The amendment calls for the SEC to study the issue and propose to Congress changes in the law designed to address any gaps or overlaps that are found to be harmful to investors, rather than impose a fiduciary standard on all advice-givers.