The insurance industry has been given much of the credit for fighting off a proposal in financial-reform legislation that would have extended a fiduciary standard to brokers. But it now appears that
Edward Jones, the brokerage known for its one-man shops and buy-and-hold culture, also played some role in pushing back the plan.
In an undated "Fiduciary Dilemma" memo circulated to congressional staff in February, the brokerage asked if an "artificial ongoing duty" might arise from a fiduciary standard, thus limiting investor options and raising costs.
The firm also questioned whether broker-dealers could sell proprietary products, initial public offerings and structured products if held to a fiduciary duty.
"Carried to its extreme, the very charging of a commission … may be seen as a conflict" under a strict standard of care, the firm wrote in the memo, potentially limiting or even prohibiting commission business.
"I kept hearing they were all over the Hill on this issue," said Barbara Roper, director of investor protection at the Consumer Federation of America.
In a letter sent to the firm in February, Ms. Roper noted that she was shocked by what she deemed to be “cynical deceptions” in the memo. She also urged the brokerage to "repudiate this disinformation campaign."
But in a statement, John Boul, a spokesman for the firm, said: "
Edward Jones supports legislation that enhances investor protection, and believes that if a fiduciary standard is adopted, it should be carefully defined and implemented in a way that considers the impact to individual investors." He declined further comment.
The Senate's financial-reform package, the Restoring American Financial Stability Act of 2010, was approved by the Senate Banking Committee in March. The bill did not include the fiduciary provision — one that had been included in an earlier draft.
Instead, the fiduciary-standard proposal was replaced by language proposed by Sen. Tim Johnson, D-S.D., and Michael Crapo, R.-I.D., directing the Securities and Exchange Commission to study the "standards of care" required for retail customers under adviser versus broker regulation, and analyze regulatory gaps and resources directed into each area.
"If you look at who was behind the effort to strip [the provision] from the bill, it was [Mr.] Johnson of South Dakota and [Mr.] Crapo from Idaho," Ms. Roper said. "And who does business in those states? It's the insurance agents and Jones, so I think that [Jones memo] played a role as well," she said.
Mr. Boul downplayed the firm's clout in the discussion, however.
"It is unlikely that
Edward Jones' concerns influenced the current language in the bill any more than any other concerned participants in the process," he said in his statement.
