Congress should impose a fiduciary duty on all financial professionals who give investment advice regarding securities rather than settle for the plain-English, fair-dealing standard proposed by the securities industry, three groups said in a letter this week to lawmakers.
The four-page letter was signed by the North American Securities Administrators Association, the Consumer Federation of America, and the Investment Adviser Association sand ent to members of the Senate Banking Committee. It comes in response to universal standards that T. Timothy Ryan, the president of the Securities Industry and Financial Markets Association, proposed in testimony before the committee earlier this month.
At a March 10 hearing on enhancing investor protection and regulation of securities markets, Ryan recommended the adoption of a "universal standard of care" to harmonize investment adviser and broker-dealer regulation and move away from regulatory distinctions among banks, securities firms, and other financial institutions.
The standard should avoid "the use of labels that tend to confuse the investing public and express in plain English the fundamental principles of fair dealing that individual investors can expect from all of their financial services providers," Ryan told the lawmakers.
The three groups that sent the letter to the committee said that while they agree with Ryan on the need for holding brokers and advisers to the same "high standards of care" based on the services they provide to their clients rather than based on the type of entity they are, SIFMA's proposed generic standard would potentially harm investors.
"Despite the superficial appeal of this 'plain-English' standard, let there be no doubt that application of this commercial standard to the relationship of financial service providers and their clients would greatly diminish investor protection," the three groups wrote. The letter was signed by NASAA president and Colorado Securities Commissioner Fred Joseph, CFA director of investor protection Barbara Roper, and IAA executive director David Tittsworth.
The letter follows a pledge that committee chairman Sen. Christopher Dodd, D-Conn., made at the March 10 hearing to rebuild the nation's financial architecture with a "tough new set of protections for regular investors" that will "ensure a new era of responsibility" in financial services.
Several investment advisory groups and associations that represent mutual funds and other investment companies support imposing a fiduciary standard on all financial advisers.
Joseph is scheduled to testify before the committee tomorrow along with other regulators, including representatives of the Municipal Securities Rulemaking Board, at a second hearing.
"Millions of Main Street Americans are looking to regulators and lawmakers to help them rebuild and safeguard their financial securities," Joseph said in a statement yesterday, adding that they "deserve a regulatory structure that is collaborative, efficient, comprehensive and strong."
Noting that all Securities and Exchange Commission-registered investment advisers are subject to an over-arching fiduciary duty under the Investment Advisers Act of 1940, the letter urges Congress to extend the same fiduciary duty to all entities providing advisory services to investors.
"Surely we can all agree that, in the current climate, there must be no weakening of investor protections," the letter said. "We therefore urge you to resist the call to water down the standards applicable to advisory activities and instead to extend application of the fiduciary duty to all those engaged in advisory services."
SIFMA spokesman Travis Larson said in a statement that "fiduciary duty" is defined differently by case law in every state.
"Therefore, we are developing a universal retail national standard of care which we believe will be as high as the many disparate fiduciary standards applied among the states," he said. "Further, we've been getting input and continue to solicit suggestions from various financial planner groups, including IAA, to ensure our universal retail national standard represents the gold standard of care for financial services professionals."
