Strong fiduciary compromise included in financial reform bill

Yesterday afternoon House and Senate conferees quickly reached agreement on final fiduciary provisions as they raced to finish the financial reform bill, which will now move on to the House and Senate floors for approval.

The agreement on fiduciary provisions reflects a compromise between what the House and Senate each adopted in their separate financial reform bills last December and May, respectively.  And more importantly, the compromise removed onerous preconditions proposed earlier this week in a Senate counteroffer that the SEC would have been required to meet in order to adopt fiduciary rules for broker-dealers providing investment advice. 

The final provisions call for the SEC to conduct a study to evaluate the effectiveness of the existing legal and regulatory standards of conduct for broker-dealers and investment advisers, as well as whether legal or regulatory gaps or overlaps exist in these standards.  The time line for the study has been shortened to 6 months, which will allow the the SEC to wrap up its evaluation quickly and move on to next steps.  What those next steps will be is somewhat unclear pending the results of the study.  However, under the final provisions in the bill, the SEC will have the authority to adopt rules requiring broker-dealers who provide advice to meet the same fiduciary standard of care as investment advisers.  The question remains whether and how the SEC will use that authority as there is no mandate for them to adopt new rules or to meet a particular time line.

Overall, the inclusion of these fiduciary provisions in the regulatory reform bill is a definite victory for fiduciary advocates, and more importantly, investors.  However, there is still more work to be done in the larger fight to ensure that investors are fully protected under the fiduciary standard no matter what title their investment professional carries.  In this regard, advocates are already shifting gears to ensure that the SEC takes full advantage of its new fiduciary rulemaking authority.

Comments

[Bob Tankesley]

Could it be that, out of the investment advisory industry, we are witnessing the birth of the investment advisory profession?

[James Morgan - Puritan Financial Advisor]

The time line for the study has been shortened to 6 months, which will allow the the SEC to wrap up its evaluation quickly and move on to next steps.

[James Morgan - Puritan Financial Advisor]

The question remains whether and how the SEC will use that authority as there is no mandate for them to adopt new rules or to meet a particular time line.