Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Industry Spotlight > Broker Dealers

SEC Comment Letters Show Most Agents Oppose Fiduciary Standard

Your article was successfully shared with the contacts you provided.

WASHINGTON BUREAU–Insurance agents who sell only a limited number of financial products are sending in hundreds of letters to the Securities and Exchange Commission asking them not to hold them to a fiduciary standard when selling investment products.

With the Aug. 30 deadline for comments on the proposal remaining, 1,641 persons or entities, mostly investment advisers and members of the National Association of Insurance and Financial Advisers, Falls Church, Va., have said the agency should maintain the current suitability standard for broker-dealers.

An SEC analysis of comment letters by type indicates that 235 letters oppose a universal fiduciary standard, while 155 commentators support it.

The agency is seeking comment on Sec. 913 of H.R. 4137, the Dodd-Frank Wall Street Reform and Consumer Protection Act. The provision mandates that the agency complete within 6 months of passage of the legislation a study on the fiduciary standard issue.

The provision in the law dealing with the issue then gives the agency the power to draft a new standard-of-care rule based on the findings of the report.

In asking that the current standard be retained, Sonya Barclay, a registered representative with Walnut Street Securities Inc., Wiliamsport, Pa., said that, “While I agree that regulations are important and required in the financial services industry, imposing legal fiduciary liabilities to an already heavily regulated industry in which registered representatives must already undergo rigorous compliance will only hurt our clients by adding another layer of regulation and more costs.”

Moreover, she said, “I do not believe moving to a fee-only model will result in any better or unbiased advice.”

She adds, “It is my belief that the majority of registered representatives already act in the best interest of their clients. There is always going to be some abuse in any area of business.”

Barclay said that changing the current rule would mean “subjecting registered representatives to the potential of never-ending lawsuits.”

Clifford S Webster, an agent for Northwestern Mutual Investment Services LLC, Boston, commented that, “Adding another layer of regulation will create another layer of bureaucracy without an offsetting benefit to my clients, though they will be directing or indirectly pay for it.

“Please do not pass the fiduciary standard for registered representatives, he added.

Todd Johnson, a professional association executive for financial advisors in Minneapolis, says he works on behalf of more than 1,500 registered representatives in Minnesota.

“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.”


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.