Study Regarding Obligations of Brokers, Dealers and Investment Advisers

August 30, 2010
Elizabeth M. Murphy
Secretary, Securities and Exchange Commission
100 F Street NE
Washington, DC 20549

RE: Release No. 34-62577; IA-3058; File No. 4-606

Study Regarding Obligations of Brokers, Dealers and Investment Advisers

Dear Secretary Murphy:

Americans For Financial Reform (AFR) welcomes the opportunity to respond to the Commission’s request for comment as part of its study regarding the standard of care that should apply to brokers and investment advisers when they give investment advice and recommend securities. By way of introduction, AFR is an unprecedented coalition of more than 250 national and community-based organizations working together to support reforms that will help establish a rational and well-functioning financial system that works in the interests of consumers, investors and workers.

AFR strongly supported inclusion of legislative language in the financial regulatory reform bill that would have imposed a fiduciary duty on brokers when they give investment advice. This policy is strongly supported by our members who fully understand that investors expect the financial professional they receive investment advice from to put the customer’s interest ahead of their own bottom line.

The final compromise reached in the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes but does not require the Commission to adopt rules imposing the Investment Advisers Act fiduciary duty on brokers when they give personalized investment advice to retail investors. While AFR preferred a mandate, this provision has the potential to provide precisely the kind of investor protection AFR called for in the legislation.

It is obvious that the effectiveness of the Dodd-Frank reform bill will in large measure be dependent upon the regulatory agencies charged with its implementation. In this instance, AFR calls upon the Commission to put the interests of investors and consumers ahead of the special interests who will want weaker standards, carve-outs and other preferential treatment. We urge the Commission to resist those special interest pleas and to use the opportunity of this study to lay the groundwork for a new, pro-investor approach to the lingering issue of the oversight of brokers who provide investment advice.

The Commission is now in the position to adopt a rational, pro-investor approach to regulating brokers and investment advisers. But first, the Commission must produce a credible and objective report that lays the groundwork for a policy that imposes the Advisers Act fiduciary obligations on all investment professionals when they give personalized investment advice or recommend securities to retail investors. We urge you to do so.

Americans for Financial Reform

Click here for a pdf version of this letter.