May 15, 2013
There is an adequate body of law that defines what a fiduciary standard is. And, it is well settled that it is the intent of Congress that registered investment advisors be held to a fiduciary standard. The court would likely hold that the Commission does not have the authority to water-down the fiduciary standard that Congress intends to apply to registered investment advisors.
The question for the Commission is simple: to what standard should securities broker-dealers be held? The answer seems similarly simple: it depends what the securities broker-dealer is doing.
If a securities broker-dealer is providing comprehensive financial advice, financial planning, and the equivalent of investment supervisory services -- in effect, services similar to what a registered investment advisor provides -- then it seems fair and reasonable that the securities broker-dealer be held to a fiduciary standard.
On the other hand, if a securities broker-dealer's activities are more limited in scope -- not providing comprehensive financial advice, financial planning, or the equivalent of investment supervisory services -- then it seems fair and reasonable that the securities broker-dealer not be held to a fiduciary standard.
The Commission should know well that many of the larger retail securities broker-dealers are providing services to retail customers that Congress intended to be regulated by the Investment Advisor Act of 1940 (the "Act") and that are well beyond the scope of the exemption provided to securities broker-dealers by the Act. These services include comprehensive financial planning, retirement planning, estate planning reviews, and effectively investment supervisory services. Failure to impose a fiduciary standard on securities broker-dealers performing such securities would be contrary to the intent of Congress.
Finally, when authoring the Act, the primary intent of Congress was to protect the public. The Commission should know well that surveys have found that 95 to 99 percent of the public are unaware of the distinction between registered investment advisors and securities broker-dealers, as well as the distinction between their respective standards of care. The disparity in standards of care has created nothing but problems. To the extent that a securities broker-dealer performs services similar to those provided by a registered investment advisor, a securities broker-dealer should be held to the same fiduciary standard Congress intended.
The Commission will no doubt be under tremendous pressure by the securities broker-dealer industry to not subject them to a fiduciary standard at all. Or, if one is imposed, then to water down the standard. I pray that the Commission holds to the protections intended by Congress.