House Fiduciary Standard Provides Strong Investor Protection
WASHINGTON, D.C. (June 15, 2010) – The North American Securities Administrators Association today urged members of the House-Senate Conference Committee on financial reform to make the right choices for investors, especially when considering how stockbrokers and others providing investment advice about securities should be required to treat their customers.
“The negotiations taking place over the next two weeks by members of the House-Senate conference committee on financial reform have the opportunity to change the way Wall Street and Main Street intersect to provide stronger protections not only for today’s investors but for a generation of investors to come,” said Texas Securities Commissioner and NASAA President Denise Voigt Crawford. “That’s why it is so important that Congress gets this right.”
In a news conference, Crawford identified a provision calling for a fiduciary duty for brokers who provide investment advice about securities as the “single most important investor provision” in the reform package.
“Wall Street reform will not regain the trust of Main Street unless Congress embraces extending fiduciary duty to all financial professionals who provide advice to investors,” Crawford said. She also applauded House Capitol Markets Subcommittee Chairman Paul Kanjorski for his leadership in recognizing the need for the final package to have the “strongest possible fiduciary duty for every financial intermediary providing personalized advice.”
Crawford said state securities regulators are urging conference committee members to support the House approach to this issue. House Sec. 7103 replaces an unnecessary 12-month study favored by the Senate and directs the SEC to conduct a rulemaking to require broker-dealers giving investment advice to act in their clients’ best interests and to disclose conflicts of interest that bias their recommendations.
“This is not a new standard but rather one that has been in place for more than 50 years and applicable to investment advisers,” Crawford said. “This provision will align the legal obligations of broker-dealers with the expectations of their clients. It will address abusive sales practices such as incentive programs that encourage brokers to push more costly and poorer performing products over others. In short, it will ensure that brokers and agents put their clients’ interests ahead of their own.”
“Self-interested members of industry and their trade associations who are looking to protect their bottom line will continue to fight against the fiduciary duty standard because it will force them to disclose conflicts they’d rather keep hidden,” Crawford said. “In order to earn the confidence of American investors, these practices must end.”
Crawford also identified four additional investor protection provisions favored by state securities regulators. They include: closing a regulatory black hole by preventing those who violate the law from conducting securities offerings under Regulation D, a regulatory exemption for private securities transactions; increasing state oversight authority of investment advisers; adding state securities, banking and insurance regulators on the Financial Stability Oversight Council; and ending mandatory securities arbitration.
A summary of the news conference is available here. A chart of NASAA-supported provisions can be found here.
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, Canada, and Mexico.