Wall Street's major trade group has declared its support for a new federal fiduciary standard for broker-dealers and investment advisers who provide personalized investment advice.
Wall Street's major trade group has declared its support for a new federal fiduciary standard for broker-dealers and investment advisers who provide personalized investment advice.
“Individual investors deserve — and SIFMA strongly supports — a new federal fiduciary standard of care that supersedes and improves upon the existing fiduciary standards, which have been unevenly developed and applied over the years, and which are susceptible to multiple and differing definitions and interpretations under existing federal and state law,” Randolph Snook, executive vice president of the Securities Industry and Financial Markets Association, said in testimony prepared for a House Financial Services Committee hearing this morning.
Investment adviser groups have called for requiring all advisers to come under fiduciary standards, which require advisers to act solely in the best interest of their clients. Brokers traditionally have been regulated under a standard that requires their recommendations of products be suitable for their clients.
The Financial Services Regulatory Authority Inc. has also called for brokerage firm advisers to come under fiduciary standards, and SIFMA's support will likely cement the adoption of a fiduciary standard for advisers.
But the definition of exactly what a fiduciary standard entails is likely to become the central debate for financial advisers.
A new federal fiduciary standard “must be sufficiently flexible to be adapted to the products, services and advice chosen by the investor, and applied only in the context of personalized investment advice about securities to individual investors,” Mr. Snook said.
He also said that broker-dealer firms need “appropriate relief” from current prohibitions against principal trading, a system in which brokers are allowed to sell securities from their firms' inventory to clients.
Investment advisers are currently prohibited by law from making such trades unless they give disclosures and receive written authorization from clients for each trade.
Brokers say such a system is not workable, and they have received a temporary exemption from those rules from the Securities and Exchange Commission until 2010.
Mr. Snook also told lawmakers that SIFMA sees no need to modify existing regulations governing broker-dealer transactions that do not involve providing personal securities advice, such as when they execute customer orders or engage in market making, underwriting or cash sweep services.
SIFMA also called for Congress to allow brokers to continue imposing mandatory arbitration clauses in their contracts with investors.
The Obama administration's regulatory reform plan would prohibit the practice.
