NASAA Urges SEC to Put Investors First in Dodd-Frank Fiduciary Study

WASHINGTON (August 31, 2010) – As the debate over financial reform shifts from Congress to regulatory agencies, the North American Securities Administrators Association (NASAA) urged the Securities and Exchange Commission (SEC) to put investors first by extending the fiduciary duty to all who provide investment advice about securities – investment advisers and broker-dealers alike.

“We believe that the standard applicable to persons providing investment advice should be the fiduciary duty currently applicable to investment advisers under the Investment Advisers Act of 1940,” NASAA President and Texas Securities Commissioner Denise Voigt Crawford and NASAA President-elect David Massey, North Carolina Deputy Securities Administrator, wrote in a comment letter to the SEC.

Among the dozens of studies included in the Dodd-Frank Wall Street Reform and Consumer Protection Act is a six-month SEC study in Section 913 of the differing standards of care owed to retail investors by investment advisers and broker-dealers when offering investment advice. While investment advisers must adhere to the fiduciary standard requiring them to put their clients’ best interests first and disclose any conflicts of interest, fees and commissions, broker-dealers currently operate under the lesser standard of suitability, which does not require similar disclosures or that they place investor interests ahead of their own.

“When receiving investment advice, investors deserve and should be afforded the same level of protection and care no matter which type of securities professional they engage,” Crawford and Massey wrote. “As the brokerage business has evolved to include more advisory activities, having two separate and differing standards governing the provision of investment advice no longer makes sense.”

Previous studies have shown that the investing public is confused about this distinction and mistakenly believes that broker-dealers already act as fiduciaries. Adopting a fiduciary duty for individuals giving investment advice regardless of their title will “accomplish the dual mission of eliminating investor confusion and enhancing investor protection for retail investors,” Crawford and Massey wrote.

Some industry groups are pressuring the SEC for a watered-down standard claiming that adhering to the ’40 Act fiduciary duty would be too costly. “The direct benefits to investors from adopting this fiduciary duty standard will greatly exceed any foreseeable costs,” Crawford and Massey wrote. “The states look forward to working cooperatively with the Commission to respond to any challenges the industry may face.”

The SEC study also will evaluate the resources and effectiveness of state and federal securities regulators. Crawford and Massey highlighted the states’ history of regulating investment advisers and broker-dealers effectively and efficiently, noting their geographic proximity to investors and firms as well as the sophisticated training and technological tools they have at their disposal to assist their licensing and examination staffs.

NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico.

For more information:
Bob Webster, NASAA Director of Communications

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