SEC Comment Letters Show Most Agents Oppose Fiduciary Standard

“These registered representatives fear that the burdens placed on them by a fiduciary standard of care will prevent them from continuing to serve middle [class] Americans due to the cost in time and risk management measures,” he said. “The current suitability standard of care, while demanding, has proven to allow the ethical registered representative to serve the Middle American marketplace.”

But Gary Watkins, president of Banyan Capital Management Inc., Atlanta, said a single standard is important.

He noted that his firm’s salespeople are covered by the fiduciary standard, whereas “brokers, bankers, insurance agents and the like who sell securities are only held to a suitability standard in dealing with their clients.”

He said this “allows securities salesmen to put their interests, their firms’ interests or that of a mutual fund company ahead of their client as long as the investment is “suitable.”

Moreover, he said, securities salesmen are also not required to notify prospective clients of their regulatory history.

“On rare occasions we have allowed securities salesmen to call on Banyan. And as part of our normal due diligence, we reviewed the regulatory history of these salesmen on behalf of our clients.

“Over the past several years we have found salesmen who pled guilty to a felony [or] to participating in a Ponzi scheme and one person who was actually pleased to have only been sued three times by his clients,” he said. “Needless to say, we did not enter into a business relationship with those individuals.”

“It is mindboggling that salesmen such as these can continue to work in the financial services industry without being required to inform people of their regulatory history,” Watkins added.

David Neuman, a lawyer with the Stoltmann Law Offices, P.C., in Chicago, said there “should be a standard uniformly applied to brokers and investments advisors, provided that this standard is a real fiduciary standard, which carry duties of loyalty, full disclosure, adequate diversification, putting the client first, keeping the client abreast of market conditions, and explaining the practical impact and risks of transactions.”

He added that the line between “investment advisors and broker-dealers has been blurred to the point that there is not much distinction between the two. In reality, customers seek investment advice from brokers as much as investment advisors, so creating different standards for the two does not make practical sense.”

But, Neuman added, “to the extent a uniform fiduciary standard is applied to both investment advisors and broker-dealers, I would hope that such an SEC rule would not preempt state law fiduciary requirements in those states which impose such duties on brokers.”