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No rush on protecting investors

By Sheyna Steiner ·
Friday, April 1, 2011
Posted: 11 am ET

The Securities and Exchange Commission has delayed establishing rules that would impel broker-dealers -- and other investment advice-givers -- to labor under a fiduciary standard instead of the suitability standard to which they are currently held.

Mark Schoeff Jr., writing for, reported on Monday that the SEC may move toward rule-making later in the year instead of the projected timeline targeting spring and early summer for establishing a higher standard of care.

In the story, "Fiduciary-duty rule pushed back," Schoeff reported that the two Republican SEC commissioners disagreed with the results of the six-month SEC study and subsequent report that acknowledged the need for a fiduciary standard to protect investors.

Republicans on the House of Representatives' Financial Services Committee concurred with the two dissenting SEC commissioners and sent a letter to SEC chairman Mary Schapiro advocating more investigation into the issue.

From a March 17 story on, "House Republicans to SEC: Halt fiduciary duty rulemaking:"

The Republicans suggested that the SEC "conduct a thorough cost-benefit analysis that considers consumer preferences" and also "assess the broader practical impact" of a universal fiduciary duty on "the entire financial marketplace."

They said that they intend to hold a hearing "in the coming weeks."

Studies have found that average investors have no idea that only registered investment advisers, or RIAs, have a legal obligation to act in their client's best interest. Broker-dealers and other financial advisers do not have to act in their client's best interest. Instead, investment products being sold to the client may be suited to the investor's assets, goals and risk tolerance.

On Thursday of this week, ran another story on the uncertainty surrounding the looming regulatory change, "Fiduciary standard could choke sales of mutual funds."

Reporter Jessica Toonkel spoke with several attendees at a recent conference on mutual funds and managing investments hosted by the Investment Company Institute, the industry trade association of U.S. investment companies.

The conference attendees may not have been the most objective group to poll on the issue of establishing a fiduciary standard for broker-dealers.

One anonymous attendee had this to say on the effect acting in the client's best interest could have on the mutual fund industry:

Many funds are "sold, not bought," said one attendee at the conference, who asked not to be identified. "At the end of the day, without effective distribution of mutual fund products, no one eats," the attendee said.

It's unclear if this person is saying that no one in their right mind would buy some mutual fund products if they knew what they were getting; or, that imposing a fiduciary standard will preclude brokers from being paid on commission. It won't, though commissions would be required to be disclosed.

Other interpretations? Do you think that finance professionals who give investment advice should be held to the higher standard?

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1 Comment
Mike Kolar CPA
April 02, 2011 at 3:57 pm

As a former securities regulator with NASD, this is not a surprise.

Transaction fees are what makes it happen. Charge the person doing the deal.

End of story.