Investor Protection Act Letter

October 26, 2009

The Honorable Barney Frank

The Honorable Spencer BachusThe Honorable Paul E. Kanjorski

The Honorable Scott Garrett

RE:  October 1, 2009 Discussion Draft of the Investor Protection Act

Dear Chairmen Frank and Kanjorski, Ranking Members Bachus and Garrett and Members of the Committee:

As the Financial Services Committee moves to consider the Investor Protection Act (IPA), the undersigned organizations write to express support for a strong provision to ensure that all who offer investment advice are held to a fiduciary duty under the Investment Advisers Act.  We are pleased that the recently circulated manager’s amendment improves Section 103 of the proposed IPA and, if properly implemented, should substantially eliminate the potential for investor confusion and abuse inherent in a regulatory system that imposes different legal standards on financial intermediaries who use similar titles and offer what appear to be identical services.

While we are pleased that the most recent manager’s amendment improves upon earlier versions of the legislation, we are concerned that the special interests will seek to weaken this language through amendments that either create a new federal standard to replace the well-established fiduciary duty of the Investment Advisers Act, or seek to so severely limit the definition of “investment advice” to render the legislation meaningless.

Specifically, we understand that the broker-dealer and insurance industries may seek an amendment that that would not only weaken the investor protections in Section 103 of the IPA, but also would undermine the existing protections of the Investment Advisers Act by substituting a lowest common denominator new federal standard for the current fiduciary standard.  We urge Members of the Committee to reject this approach.

Separately, we are aware of an amendment being circulated by the American Association of Life Underwriters to limit the definition of “investment advice” to situations in which commissions are not included in the fee paid to the service provider. Under this approach, brokers would be allowed to provide investment advice under the lower suitability standard currently reserved for the sale of securities.  It also would also restrict the options available to investors by eliminating the ability of investors to receive a combination of fee-based investment advice and commission-based implementation all subject to a fiduciary duty.  We encourage you to reject any amendments such as these that would undermine the effectiveness of the IPA and to approve this legislation.

Thank you for your consideration to these issues and for your efforts to restore the integrity of the capital markets and investor confidence in them.


Americans for Financial Reform

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