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Senate Reform Compromise Said to Be SEC Study With Fiduciary Authority at End

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Senator Christopher Dodd (D-Connecticut) told House conferees in the late afternoon of Tuesday, June 22, that the Senate would present a counteroffer that day on whether to put brokers under a fiduciary standard of care. Conferees are scheduled to get back to work Wednesday afternoon, June 23.

Industry sources said they believed that the Senate counteroffer would be to retain the Senate language requiring the Securities and Exchange Commission (SEC) to study gaps in advisor and broker/dealer regulation, but at the end of the study the SEC would be given the authority to put brokers under a fiduciary standard of care. However, the caveat is that the SEC will be given the authority to write the fiduciary rules if the agency finds at the end of the study that the benefits of putting brokers under a fiduciary standard outweighs the potential litigation and compliance costs.

Dale Brown, president and CEO of the Financial Services Institute (FSI), says that the outcome on the fiduciary issue that the FSI has pursued “has been the standard of care and all of the issues surrounding harmonization be defined by the SEC.” That’s why the FSI endorsed the Senate language calling for the SEC study, he said, adding “the SEC study was the best path.”

When it comes to defining a fiduciary standard for brokers and advisors, Brown said that the FSI believes that the SEC should develop “a new universal standard of care.” FSI’s goal, Brown says, “will be a [fiduciary] standard that raises the bar [for brokers] and is workable in all client situations and workable across all business models in the industry, doesn’t favor one compensation method over another or disadvantage one compensation method over another.” He adds that to accomplish “true harmonization” a new universal standard of care must be combined with enhanced oversight of advisors.

The Senate and House conferees have an ambitious goal of completing the conference process this week.


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