Pension fund managers and other “sophisticated investors” may need the protection of a fiduciary standard as much as the little guys, Luis Aguilar says.

Luis Aguilar

Luis Aguilar

Pension fund managers and other “sophisticated investors” may need the protection of a fiduciary standard as much as the little guys, Luis Aguilar says.

Aguilar, a commissioner at the U.S. Securities and Exchange Commission, talked about the standard of care sellers of financial products ought to follow earlier this week at a lecture at Loyola Marymount University in Los Angeles.

Aguilar talked about implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, an act that was signed into law July 21.

“Now that the Dodd-Frank Act is law, the focus will move from Congress to the regulators, including the SEC, to fill in the details and to write the rules that will make financial reform a reality,” Aguilar said, according to a written version of the Dodd-Frank Act speech posted by the SEC.

“This point has not been lost on all the financial industry participants impacted by the legislation,” Aguilar said. “Already my office, as well as many others throughout the commission, is fielding meeting requests from lobbying groups, industry groups and trade associations on a wide variety of issues raised in the legislation.”

The SEC should resist pressure from those interest groups and others to establish a

“two-tier market,” Aguilar said.

“The fact is there is only one capital market and it is highly integrated,” Aguilar said.

Recent SEC enforcement cases have shown that “institutional investors were not able to protect themselves and failed to receive complete and honest disclosure,” Aguilar said.

Even if institutional investors are the ones who misjudge the risks of investing, that does not mean that only wealthy or sophisticated investors will suffer, Aguilar said.

“The widespread financial crisis of 2008 clearly disproved this argument, but it is also untrue even on a smaller scale,” Aguilar said. “After all, a single sophisticated institutional investor, whether it is a bank, pension fund, mutual fund, or other entity, often represents investments from many individual retail investors. And it is these small investors that ultimately bear the cost.”

The principle applies to efforts to have a fiduciary standard apply to investment advisors and a looser suitability standard to broker-dealers, Aguilar said.

A fiduciary standard requires sellers to put customer interests ahead of their own.

A suitability standard requires sellers to verify that the products sold to a customer appear to suit the needs of the customer.

“Currently, if a broker-dealer and an investment adviser provide exactly the same advice to the same investor, the duties and responsibilities to the investor can differ simply as a result of the title on the industry professional’s business card,” Aguilar said. “It is time that we applied the same standard, that of a fiduciary, to both kinds of professionals.”

A recent survey has shown that many consumers already believe that all financial advisors have a fiduciary duty and cannot tell the difference between the different kinds of advisors, Aguilar said.