Wealth Manager has obtained a draft of the amendment. It mandates the extension of the fiduciary standard as it applies to investment advisors under the Investment Advisers Act of 1940, to broker/dealers who provide, “personalized investment advice about securities to a retail customer (and such other customers as the Commission may by rule provide)…”

It calls for the SEC to write rules:

to provide that, with respect to a broker or dealer, when providing personalized investment advice about securities to a retail customer (and such other customers as the Commission may by rule provide), the standard of conduct for such broker or dealer with respect to such customer shall be the same as the standard of conduct applicable to an investment adviser under section 211 of the Investment Advisers Act of 1940.

The receipt of compensation based on commission or other standard compensation for the sale of securities shall not, in and of itself, be considered a violation of such standard applied to a broker or dealer. Nothing in this section shall require a broker or dealer or registered representative to have a continuing duty of care or loyalty to the customer after providing personalized investment advice about securities.

The amendment also calls for additional authority for the SEC to:

  • require broker/dealers to disclose the “range of products offered”
  • prohibit or restrict “certain sales practices, conflicts of interest, and compensation schemes for brokers, dealers, and investment advisers that the Commission deems contrary to the public interest and the protection of investors.”
  • enforce “violations” of these rules with broker/dealers.

It also requires that advice givers:

  • “act in the best interest of the customer”
  • that “any material conflicts of interest shall be disclosed”
  • and that, “the Commission will facilitate the provision of simple and clear disclosures to investors regarding the terms of their relationships with brokers, dealers, and investment advisers, including any material conflicts of interest”

Comments? Please send them to kmcbride@wealthmanagerweb.com. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.