SUPPORT FOR A UNIFORM FIDUCIARY STANARD
The question of harmonizing the standards governing all those who give investment advice is receiving increasing attention. Initially, the Administration’s White Paper last June suggested that the standard of care for brokers who provide investment advice should be the same as that of investment advisers. The financial reform bill passed by the House contains a variation of this proposal which is more limited and centers on the Commission writing rules to govern brokers giving investment advice. The Senate bill initially contained a provision which addressed this issue, but which was abandoned in favor of having the SEC prepare a study on the question as discussed here.
In a recent speech, SEC Commissioner Louis Aguilar strongly advocated harmonizing the standards. “A Shared Responsibility: Preserving the Fiduciary Standard,” delivered to the IA Compliance Best Practices Summit 2010, March 26, 2010, available here. Investment advisers, the Commissioner noted, owe their clients an affirmative duty of the utmost good faith and fair disclosure. They are required to serve their clients with undivided loyalty. This standard has served advisory clients well over the years. This standard, and not a variation of it, should apply to all, according to Commissioner Aguilar.
Diminishing the fiduciary standard raises several concerns Commissioner Aguilar noted. First, there is no need to conduct a study since there is a strong and workable standard. Second, the limits in the house bill which applies only to “retail” customers are inappropriate as the recent difficulties in the ARS market demonstrate. Third, there is no reason to limit the duty to “personalized services,” as suggested by the House bill. This simply narrows the range of clients to whom the standard applies. Finally, no study is needed to conclude that brokers providing investment advice should be subject to fiduciary standards, contrary to the provision in the current Senate bill. Overall, what is needed is the application of the existing standard to all who give investment advice according to Commissioner Aguilar.