Financial Regulatory Forum

Obama broker proposal gets Wall Street backing

By Reuters Staff
July 17, 2009

Wall Street TradersBy Kevin Drawbaugh
WASHINGTON, July 17 (Reuters) – A lobbying group for the U.S. securities industry said on Friday it supports an Obama administration proposal to hold brokers to a higher fiduciary standard — matching that of investment advisers — when they give personalized advice to clients.
The Securities Industry and Financial Markets Association (SIFMA) said in a statement it backs the proposal to “provide clarity to consumers while expanding investor protection to a broader range of personalized investment advice.”
SIFMA’s stance marks a turning point in a long-running debate over the separate standards applied to broker-dealers and investment advisers on their fiduciary duty of putting their clients’ interests ahead of their own.
The Securities and Exchange Commission has tried in the past to resolve the dual standards. The SEC would be called on to work out the details of the Obama proposal, a task that could take many months to carry out.
Surveys in recent years have shown a great deal of confusion among investors about the differences between brokers and advisers and what obligation each has to their clients.
“After nearly 70 years of confusion, with separate broker and adviser regulations, we have an opportunity to start anew,” said John Taft, head of RBC US Wealth Management and chairman of SIFMA’s Private Client Group.
The Obama plan for financial regulation reform proposes that “the SEC should be given new tools to increase fairness for investors by establishing a fiduciary duty for broker-dealers offering investment advice and harmonizing the regulation of investment advisers and broker-dealers.”
The business of selling investment advice was once clearly delineated from the brokerage business. Advisers got flat fees from clients; brokers got sales-based commissions. Each field followed its own fiduciary duty standard.
The distinction blurred in recent years as Wall Street started selling fee-based brokerage accounts. Brokers who tend these accounts are often promoted as investment “advisers.”
Independent investment advisers, unaffiliated with brokerages, have been saying for years that brokers are really just salesmen and shouldn’t be allowed to portray themselves as putting investors’ interests foremost.
At present, brokers have to follow rules of their own governing their duty to clients. But independent advisers have argued that the rules they have to follow are stricter.
The administration wants to align the standards, likely at or near the level to which advisers are held.
SIFMA presented its position on the Obama administration’s proposal at a U.S. House of Representatives Financial Services Committee hearing. The group’s support for the proposal would limit application of the higher fiduciary standard to instances when brokers give personalized advice. (Editing by Leslie Adler)

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