Behind-the-scenes battle raging in Congress over fiduciary amendment

May 11, 2010 @ 4:05 pm

By Mark Schoeff Jr.

As the Senate this week wades through scores of amendments to legislation on financial regulatory reform, lobbying for and against applying a fiduciary standard to broker-dealers has reached a fever pitch.

Most of the activity is centering on an amendment offered by Sens. Robert Menendez, D-N.J., and Daniel Akaka, D-Hawaii, that would require broker dealers to act in the best interests of their retail clients and disclose conflicts of interest — the same rule investment advisers must follow. The provision would give the Securities and Exchange Commission the latitude to apply the standard to institutional investors as well.

The amendment, which differs only slightly from a provision in the House bill, would replace language in the Senate bill calling for a study of the issue. Observers expect a vote on Menendez-Akaka as early as May 12. Senate Majority Leader Harry Reid, D-Nev., has said he wants to finish the bill this week.

That timetable, which remains uncertain, has generated a flurry of letters and visits to Capitol Hill by the Financial Planning Coalition, the Consumer Federation of America, the North American Securities Administrators Association Inc. and AARP.

“This is a once-in-a-decade opportunity to reform our financial system,” Robert Glovsky, chairman of the Certified Financial Planner Board of Standards Inc., said in a May 11 conference call with reporters. “We're cautiously optimistic. The time is now. We don't need to study this anymore.”

Mr. Glovsky and his colleagues are pitching the fiduciary standard as one of the most straightforward ways to address the fears of consumers who depend on the stock market for financial needs such as retirement savings.

“It protects investors, particularly the elderly,” Mr. Glovsky said.

It's unclear how much legislative support there is for fiduciary standards, however. Several amendments have been filed, including one by Sens. Arlen Specter, D-Pa., and Ted Kaufman, D-Del., that would create criminal penalties for violations of the standards.

Sen. Christopher Dodd, D-Conn., and chairman of the Senate Banking Committee, took stronger fiduciary language out of the Senate bill. But on the Republican side, Sen. Susan Collins, D-Maine, has expressed strong interest in the issue.

“There's a lot of vote counting going on,” said William Baldwin, chairman of the National Association of Personal Financial Advisors.

Advocates for the fiduciary standards are battling an equally strong effort by brokers and insurers opposed to imposing the requirement on brokers. They claim that such a standard would limit their ability to charge commissions and offer proprietary products.

Andrew DeSouza, a spokesman for the Securities Industry and Financial Markets Association, declined to comment on the Menendez-Akaka amendment.

Referring to fiduciary standards generally in a May 4 e-mail, Mr. DeSouza said: “While we support a fiduciary duty for brokers and advisers when providing personalized investment advice to retail investors, we have serious concerns with such a standard being automatically extended to brokers when they are not providing personalized advice but merely acting as a market maker or counterparty to sophisticated institutional investors.”


What do you think?

View comments

Most watched


Finding your edge from Tony Robbins

Guru Tony Robbins has helped a lot of people, but armed with his psychology Financial Advisor Josh Nelson has helped his practice soar.


Finding innovation in your firm

Adam Holt of AssetMap explains how advisers understand they need to grow, but great innovation may be lurking right under your nose.

Latest news & opinion

The growth of factor-based investing

Advisers are making decisions about clients' portfolios by using the same characteristics that govern factor-based ETFs.

Finra makes its list to target hundreds of rogue individuals

The regulator sees patterns in the behavior and disclosures of high-risk brokers.

LTC insurer offering co-pays to blunt soaring premium increases

John Hancock policyholders would get a discount on their premium in return for agreeing to pay a bigger portion of their claims in the future.

Goldman Sachs acquires United Capital

After a payday of $75 million or more, CEO Joe Duran plans to join Goldman in a senior position.

Private equity loves IBDs, but will that last?

Three big acquisitions in less than a year signals renewed life in the formerly beleaguered industry.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print