As Senate floor debate on financial regulatory reform begins, a key Republican senator could revive the push for a broad fiduciary standard for broker-dealers.
Sen. Susan Collins, R-Maine, plans to offer an amendment on fiduciary standards that could be more sweeping than a controversial proposal in a House bill passed last year.
An aide to Ms. Colllins said that specific language for a specific amendment has not yet been drafted. But at two hearings this week, Ms. Collins indicated that she may favor imposing fiduciary requirements on broker dealers for both retail and institutional investors.
During a contentious April 27 hearing, Ms. Collins grilled current and former officials of The
Goldman Sachs Group Inc. on whether they put company profits above the welfare of their clients. “I raised what I think is an essential issue,” she said later.
Indeed, support for expansion of the fiduciary standard has clearly picked up — just as the full Senate grapples with the specifics of the financial reform bill that went to the floor today.
The bill that emerged from the Senate Banking Committee in March calls for a Securities and Exchange Commission study on whether broker-dealers who provide investment advice should meet the same fiduciary obligation as investment advisers. An amendment written by Sen. Robert Menendez, D-New Jersey, and Sen. Daniel Akaka, D-Hawaii, would replace the Senate provision with one from the House bill. That provision instructs the SEC move ahead with writing a universal fiduciary standard for investment advisers and broker giving advice.
The House proposal would apply only to retail investors, however. In her questioning of Goldman executives, Ms. Collins indicated that she favors broader fiduciary coverage.
“That tends to make me think that there is some conversation going on behind the scenes to expand the House fiduciary duty beyond just retail investors,” said Texas Securities Commissioner Denise Voigt Crawford, who also is president of the North American Securities Administrators Association.
The insurance and securities industries oppose applying a universal fiduciary standard. They argue such a requirement would hamper brokers' ability to serve their clients and might preclude them from conducting customary business, including selling proprietary products.
“I'm not sure whether highlighting this issue is going to be sufficient to rally the votes needed for an amendment that would establish a fiduciary standard immediately,” said Dan Barry, director of government relations for the Financial Planning Association.
Nevertheless, Ms. Collins is pressing her case.
The day after the Goldman hearing, she engaged in an exchange with SEC Chairman Mary Schapiro about the scope of the fiduciary requirement.
At an April 28 hearing of a Senate Appropriations subcommittee, which has jurisdiction over the SEC budget, Ms. Shapiro said: “The duty that exists on the investment advisory side does not exist, clearly, on the on the broker-dealer side, and we need the law to make this a uniform fiduciary duty.”
“And in writing this new rule, like we did, should we distinguish between individual retail investors for whom having that obligation is perhaps even more important — because they're less sophisticated, arguably than most institutional investors — or should it apply across the board?” Ms. Collins asked.
“I think we could step this up over time to be broader,” the SEC boss said. “But I would start very clearly with retail.”
[Jessica Toonkel Marquez contributed to this story]
