After finishing up hearings on financial regulatory reform earlier this month, the House Financial Services Committee began the task of marking up reform legislation this past week. The Committee reached its first major milestone by passing legislation on over-the-counter derivatives and will continue to push forward on other pieces of legislation in hopes of a full House vote on a reform package in November.
Fiduciary duties for investment professionals that provide advice continues to be a key piece of the proposed Investor Protection Act of 2009 , which will likely be considered in a mark-up session next week or the following week. With this legislation looming, industry groups representing different views on the fiduciary standard have been increasingly promoting their advocacy efforts on Capitol Hill. Just these past couple of weeks the Financial Planning Coalition launched a website, as did the Committee for the Fiduciary Standard, in order to promote fiduciary issues and keep the public abreast of their advocacy activities. On the broker-dealer side, the new head of the SIFMA Washington office started his new post and will play a key role in the organization's lobbying efforts to promote "a harmonized fiduciary standard." Meanwhile, members of FSI spent a day meeting with Congressional members to promote "a universal standard of care" for investment professionals.
In an effort to further promote the fiduciary standard, fi360 CEO, Blaine Aikin, urged our readers earlier this week to speak out on behalf of investors and the professionalization of investment advice by contacting legislators and regulators. Now is a key time for clear and effective advocacy for the fiduciary standard as Congress is moving quickly to consider and implement financial regulatory reform, and key industry groups are jockeying for their views to be heard.
If you would like to do more to promote the fiduciary standard and ensure that Congress "gets it right", you should contact your Senators and Congressional Representatives as soon as possible. In addition, you should directly reach out to the Chairman Barney Frank and Ranking Member Spencer Bachus of the House Financial Services Committee and Chairman Christopher Dodd and Ranking Member Richard Shelby of the Senate Committee on Banking.
Key points to emphasize to Congressional Leaders and your own Senators and Representatives include:
- To the extent that investment professionals provide similar services, similar protection for investors' interests should also be provided; and in particular, broker-dealers who provide investment advice should be held to the same fiduciary standard of care as investment advisors.
- As acknowledged by panelists testifying before on the House Financial Services Committee on October 6, 2009, the fiduciary standard is a more stringent and higher standard than the suitability standard that currently applies to brokers. The fiduciary standard requires investors' interests to be put first and involves more than just checking to ensure that a single investment is appropriate for an investor.
- Despite claims by SIFMA to the contrary, the principles upon which the fiduciary standard are based are clearly established in law. (In fact, as Blaine's blog post from Wednesday explains, the Committee for the Fiduciary Standard has identified five core principles, which have been received positively by policymakers in Washington.)
The message on the fiduciary standard needs to be made simple and clear to legislators who must largely look to regulators and the industry for guidance and education on these issues. We will continue to keep you updated as regulatory reform continues to develop, and we hope that you will heed the call to action to promote a positive change in regulation on behalf of investors and the profession as a whole.
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