The fiduciary duty should extend to all broker dealers when they offer investment advice about securities to retail customers, said a group of advisors, financial planners and consumer advocates in a letter to the Securities and Exchange Commission last week.
The letter, whose signatories included the Investment Adviser Association, the AARP, the Consumer Federation of America and the Financial Planning Association, among others, was addressed to SEC Chairwoman Mary Shapiro was an effort to weigh in on extending the Investment Advisers Act of 1940 to all broker-dealers.
The groups support the SEC staff study in January 2011 that would adopt parallel rules imposing a fiduciary duty on broker-dealers, including those in the broker-dealer units of insurance companies selling proprietary products, and investment advisers is consistent with the Dodd-Frank Act.
The SEC will likely propose its regulation for a uniform fiduciary standard this year. Schapiro said she still strongly believes that putting brokers under a fiduciary mandate is the direction that the SEC needs to go in, despite demands by insurance agents that the proposal be “business-model neutral.” That is, continuing to allow insurance agents to sell a limited number of proprietary products from the broker-dealer unit of insurance companies.
Members of the broker-dealer community have fretted that imposition of a fiduciary duty on brokers’ personalized investment advice could have catastrophic consequences – forcing them as agents to abandon commission-based compensation, proprietary sales, or transaction-based recommendations.
Nonsense, the groups told the SEC.
“One need only look at longstanding practices under the Advisers Act as applied to dual registrants and to financial planners who are registered as investment advisers for evidence that the fiduciary duty is fully consistent with sales-related business practices, including receipt of transaction-based compensation, sale of proprietary products, and sale from a limited menu of products,” the letter stated.
Of course, the advisors want all agents to abide by a level playing field of the fiduciary standard.
The groups also doesn’t want a new, or a separate and distinct rule from the general fiduciary but rather extended using principles-based fiduciary rulesmaking.