The Senate passed its version of the financial services reform bill, S. 3217, on Thursday, May 20, by a 59-39 vote. Before the sweeping reform bill passed, Dale E. Brown gave his opinion on the pending bill to Robert F. Keane, Managing Editor of Investment Advisor.
By Dale E. Brown
When financial services regulatory reform efforts began in Congress in 2009, it was certain that there would be moments of high drama for investors, broker/dealers, and financial advisors. We have not been disappointed. As is often the case with scenarios full of complexity, seemingly conflicting views and perspectives, and the nuances and gray areas that constitute our real and imperfect world, it was also certain that we would experience a sound-bite approach to the 1,410 pages of legislation that the Senate may pass this week. What we could not foresee, however, was that the most recent sound bite would be “Because of Goldman Sachs.” Pair this with the sound bite that had already emerged about what many view as the answer to investor protection – “suitability standard = bad” and “fiduciary standard = good” – and we have a truncated dialogue that does not do justice to investors.
The issue of whether the fiduciary standard is the best standard for all advisors is more intricate than it might seem. As Senator Susan Collins, who drafted an amendment to the Senate bill attempting to impose a fiduciary duty on broker/dealers in the aftermath of the Goldman Sachs hearings, acknowledged, “It’s turning out to be far more complicated than it first appeared.”
The Financial Services Institute, which represents independent broker/dealers and their affiliated advisors and thus, by extension, the millions of “Main Street” Americans who rely on independent advisors for comprehensive financial services, is committed to enhancing investor protection. Our vision is that all individuals have access to competent and affordable financial advice, products, and services delivered by a growing network of independent financial advisors affiliated with independent financial services firms. Concurrent with this vision is the belief that even the most well-intentioned investor protection “reform” can have unintended consequences that may, in fact, harm investors, limit their access to affordable advice, or restrict their choice of advisor. At times in this debate, FSI has been portrayed as being “anti-fiduciary.” We’d like to set the record straight by clearly stating what we are for – and what we hope will be the final result of regulatory reform legislation.
We’re for a uniform standard of care defined by the SEC. Investors’ understanding of the standard of care owed to them by their chosen financial advisor must be improved. An appropriate standard of care will ensure transparency in these business relationships, effective disclosures to clients, and efficient, low-cost investment solutions and operations, while promoting and enhancing investor protection. Each of the existing standards (suitability and fiduciary) has its shortcomings. The standard of care issue must be addressed carefully and thoughtfully to ensure investors are protected while minimizing unintended consequences. We believe the SEC study required by the Senate bill will provide all stakeholders – investors, the financial services industry, consumer groups, and others with greater familiarity of the needs of the retail market – an opportunity for meaningful input into the creation of a standard that works for “Main Street” investors. The “intended” consequences should include universal access to competent and affordable investment advice, clear and concise client disclosures, and better clarity about the obligations broker/dealers, RIAs and financial advisors owe to consumers under a wide variety of relationships, whether that obligation is represented by a “new” fiduciary standard or enhancements to the existing one.