Fiduciary Standard Advances

It would restore language formerly in the bill establishing a "fiduciary duty for brokers, dealers, and investment advisers."

They are calling their bill the "Honest Broker Amendment."

The fiduciary standard would require agents and brokers to look out for the best interests of their customers when they sell financial products.

The Securities and Exchange Commission is pressuring Congress to tighten the provision, removed from the Senate bill in March.

But insurance agents oppose the tighter standard. They sell a limited range of investment products under a lower suitability standard, which holds them only to sell only products "suitable" to the customer.

They say it will lead to unnecessary lawsuits by people who lose money on investments as well as raise their costs.

A spokesman for the Association for Advanced Life Underwriting said, "We continue to believe the best way to protect retail life insurance consumers is the SEC study and directed rulemaking included in Chairman Dodd's bill with bipartisan support."

James Hill, an AALU spokesman, said it is premature to impose a one-size-fits-all federal standard on life insurance agents, who already comply with strong state and federal rules, without a clear understanding of the current regulatory system under which they operate.

Jill Edwards, a vice president at the National Association for Insurance and Investment Advisers, expressed similar concerns.

There has been "zero public review or comprehensive analysis of this issue," she argued. The current language in the legislation as reported out by the Senate Banking Committee in late March is preferable, she said. It is more appropriate because the RAND Study that prompted the fiduciary provision never evaluated the different regulatory environment governing broker-dealers and investment advisers, she said.

The amendment would restore Sec. 913 to the bill reported out in late March by the Senate Banking Committee.

The provision was in the bill originally proposed by Sen. Chris Dodd, D-Conn., chair of the committee, last December.

But, under pressure from the insurance industry, the provision was replaced by an amendment proposed by Sen. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho. The amendment calls for the Securities and Exchange Commission to study the issue and propose to Congress changes in the law designed to address any gaps or overlaps that are found to be harmful to investors.

Knut Rostad, a financial planner who is a key official of the Committee for the Fiduciary Standard, a coalition of trade groups that support the uniform standard, said the recent hearing on trading by Goldman Sachs of mortgage-backed securities it created, then sold options betting that they would lose value, put pressure on Congress to impose tougher standards.

"The Goldman hearing disrobed the suitability-fair dealing standard," he said. "The world saw [through the recent Senate hearing] what this lower standard actually requires. Goldman executives correctly stated their disclosure obligation was generally limited to the features of the underlying asset or investment." he said.

Neil Simon, a vice president for government relations at the Investment Adviser Association, said his group is hoping that the Senate adopts the Menendez-Akaka amendment.

"The issue has been studied more than enough, and it is time for all investors, whether they buy from an investment adviser or a broker-dealer, to be afforded the high level of protection afforded by the fiduciary duty standard," he said.

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