As the Senate moves closer to consideration of financial regulatory reform legislation, Sen. Akaka and Sen. Menendez have announced their intention to offer an amendment to restore the bill’s most important provision to protect average, retail investors – the provision holding brokers to a fiduciary duty when they give investment advice. The amendment would replace language added to the bill in committee that would delay indefinitely any SEC action to address a gaping hole in investor protections, that brokers are permitted to offer the same advisory services to investors as investment advisers without having the same obligation to act in investors’ best interests.
Based on language in the House-passed reform bill, the amendment would require the Securities and Exchange Commission (SEC) to adopt rules so that brokers who give personalized investment advice to retail investors would have the same obligation as investment advisers to act in the best interest of their clients and to disclose conflicts of interest that could bias their recommendations. That approach has been endorsed by CFA, AARP, Americans for Financial Reform, the Investors Working Group, the North American Securities Administrators Association, the National Association of Secretaries of State, and SEC Chairman Mary Schapiro, among many others.
Unfortunately, the same broker and insurance groups that succeeded in weakening the bill in Committee are back on the attack with a campaign based on misinformation and exaggeration. This campaign is nothing more than an effort to maintain the status quo, in which salespeople are allowed to misrepresent themselves as advisers and offer services that are indistinguishable to investors from those offered by investment advisers without meeting the basic standards that are demanded by this relationship of trust. The Akaka-Menendez amendment would change all that by forcing them to put customer interests ahead of their own bottom line.