July 30, 2010
I am asking you, the SEC, to not exercise your authority to impose a misguided fiduciary standard on myself and other members of NAIFA.
From my understanding,The Dodd-Frank Act permits you to require that all broker-dealers be held to the same legal fiduciary requirement investment advisers have when providing advice to clients. The premise behind the effort is based on the perception that the legal fiduciary duty governing investment advisers provides greater investor protection than the suitability standard governing broker-dealers.
I vehemently disagree that the fiduciary standard has protected consumers better. Basically, the fiduciary standard looks back and enforces breaches retroactively through SEC enforcement or private lawsuits. The suitability standard looks forward and tries to prevent harm to consumers through ongoing and frequent FINRA and broker-dealer audits and compliance processes.
Should you choose to use that authority, the fiduciary duty as defined by the Dodd-Frank Act would require that all broker-dealers be held to a legal and vaguely defined standard "to act in the best interest of the customer without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice."
While I and my other NAIFA members believe we are already acting in the "best interest" of our clients, the Act does not define what the rules are for compliance with a legal "best interest" standard - thus subjecting registered representatives to the potential of never ending lawsuits. For example, is "best" the cheapest recommended product? The "best" premium relative to the benefit of the product? The product with the "best" historic underwriting and service standards? Is it the one from the carrier with the "best" rating? The fiduciary standard in essence adds a vague legal liability standard that looks back (sometimes after many years) and is enforced after the fact by the SEC or trial lawyers who have perfect vision in hindsight.
Thank you for your consideration, Joe Nill