Terms such as “fiduciary duty” and “suitability” contribute to investor confusion, and they should be replaced by a “universal standard of care” for brokers, says SIFMA.
Terms such as “fiduciary duty” and “suitability” contribute to investor confusion, and they should be replaced by a “universal standard of care” for brokers and investment advisers, Securities Industry and Financial Markets Association president and chief executive Tim Ryan today told the Senate Banking Committee.
In prepared testimony for a hearing on enhancing investor protection and regulating securities markets, he noted that a 2007 report written by the Rand Corp. of Santa Monica, Calif., for the Securities and Exchange Commission found that investors were confused by the two different sets of regulatory standards.
Investment advisers are held to a fiduciary standard, which requires greater disclosure of possible conflicts of interest, while brokers are required to make product recommendations that are suitable for their clients.
“Rather than perpetuating an obsolete regulatory regime, SIFMA [of New York and Washington] recommends the adoption of a universal standard of care that avoids the use of labels that tend to confuse the investing public and expresses, in plain English, the fundamental principles of fair dealing that individual investors can expect from all of their financial services provides,” Mr. Ryan said in his testimony.
His statement amounts to a call for abandoning the fiduciary standard, said David Tittsworth, executive director and executive vice president of the Investment Adviser Association of Washington, which represents SEC-registered investment advisory firms.
“This is saying eliminate fiduciary duty and let’s have a universal standard of care,” he said.
“We think it would be a grave mistake to go to a lower standard of care. Fiduciary duty should be extended to everyone who gives investment advice, not eliminated or watered down,” Mr. Tittsworth said.
Investment advisory groups, including the Financial Planning Association, the National Association of Personal Financial Advisors and the Certified Financial Planner Board of Standards Inc. have also called for requiring all financial advisers to come under fiduciary standards.
