WASHINGTON BUREAU — The head of Goldman Sachs Group Inc. and a coalition of consumer groups are speaking up for the idea of imposing a fiduciary standard of care on all sellers of investment products.
Advocates of a fiduciary standard of care want all sellers of investments, including broker-dealers, to put the interests of the clients first; insurance producer groups have argued that broker-dealer representatives who are life insurance agents naturally have a duty to represent the interests of the insurers they represent.
Insurance groups want to keep the current rules, which simply require that broker-dealers verify that the products sold to clients are suitable for those clients.
Goldman Sachs Chairman Lloyd Blankfein addressed the fiduciary standard controversy today, when he appeared here as a lead witness at the opening hearing of the Financial Crisis Inquiry Commission.
"We do support the extension of a fiduciary standard to broker-dealer registered representatives who provide advice to retail investors," Blankfein testified. "The fiduciary standard puts the interests of the client first."
Blankfein said the advice-giving functions of brokers who work with investors have become similar to that of investment advisers.
"Investors may not understand that the person they are getting advice from may be regulated under different rules and regulations," Blankfein said. "Retail investors should be able expect the same duty of care when they are receiving investment advice."
Meanwhile, consumer groups are arguing in a letter to members of the Senate Banking, Housing and Urban Affairs Committee that the broker-dealer exemption allows brokers to avoid registering as advisors if the advice they provide to clients is "solely incidental" to selling securities.
"For too long, brokers have been free to market themselves as trusted advisers and offer extensive advisory services without having to meet the fiduciary standard appropriate to that role," the groups write.
The draft bill "eliminates the legislative loophole that has allowed this dual standard to persist," the groups write. "Unfortunately, some in the industry who have for years actively marketed themselves to investors as trusted advisers are resisting regulation as advisers." they added.
In addition to the Consumer Federation of America, Washington, and the North American Securities Administrators Association, Washington, the signers of the letter include representatives from planner groups such as the Certified Financial Planner Board of Standards Inc., Washington; the Financial Planning Association, Denver; and the National Association of Personal Financial Advisors, Arlington Heights, Ill.
Insurance producers continue to object to the proposed standard-of-care change.
"Our position remains that, in any final bill the Securities and Exchange Commission should be given the authority to conduct a comprehensive study, and, then, and only then, to act," says Jill Edwards, an assistant vice president at the National Association of Insurance and Financial Advisors, Falls Church, Va.
The difference between the two standards regimes is substantive, and each in its own way provides customers with the highest standard of care, Edwards says.
The fiduciary standard is right for individuals who are selling advice or managing assets, and the suitability standard is right for agents and brokers who are selling a limited number of investment products, Edwards says.
"It is presumptuous to perceive that the fiduciary standard is a higher one than suitability," Edwards says. She says NAIFA wants to give the SEC the authority to address any gap in regulation and consumer protections that it finds, but only after it has completed a thorough study.
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