Broker-Dealers Must Be Held to a Real Fiduciary Standard
Securities and Exchange Commission (SEC) Commissioner Luis Aguilar has consistently stated that Congress should mandate that all providers of investment advice, including broker-dealers, should be subject to the fiduciary standards imposed by the Investment Advisers Act of 1940 (Advisers Act). He said so again recently in a speech at the Investment Adviser Association Annual Conference, reported by Bloomberglaw.com. Commissioner Aguilar added that he is “a staunch advocate for regulatory reform that is oriented toward investors … [i.e.], that would strengthen the investor protection regime that currently exists and that results in enhanced protections and flexible authority to regulate an unforeseeable future.”
The fiduciary standard that has long governed investment advisors should be the governing standard whenever investment advice is provided, said Commissioner Aguilar, observing that the lack of such a fiduciary duty for broker-dealers leads to real harm to investors. “If you are giving investment advice to an investor, regardless of the title on the business card, you should always be bound to do so in the best interests of the client. While the scope of service may vary between clients, the standards of loyalty and care in providing the service should not,” said Commissioner Aguilar.
But they do. “Currently, broker-dealers are providing investment advice without any requirement that they serve as fiduciaries. In other words, broker-dealers are being permitted to end-run the Advisers Act,” said Commissioner Aguilar. Consequently, investors are “receiving tainted advice from broker-dealers and they have no way of knowing that the advice was tainted by an undisclosed conflict.”
Commissioner Aguilar believes that it is very important that Congress specify that the fiduciary standard applicable to broker-dealers is the same fiduciary standard imposed by the Advisers Act. Broker-dealers and their lobbyist have tried to hide their opposition by appearing to endorse a fiduciary standard that is really no different than the inadequate “suitability” standard that is currently in place, which does not require broker-dealers to disclose their conflicting interests.
Unlike the phony fiduciary standard that broker-dealers are selling, the true fiduciary standard advocated by Commissioner Aguilar and other investor advocates “guards against the inherent bias that arises when the broker-dealer is focused on selling a product, rather than focusing only on what is best for a client. Permitting broker-dealers to provide investment advice without requiring them to act as fiduciaries is to permit a practice that undercuts the core principals of the Advisers Act and leaves investors vulnerable to the same abuses described in the 1930s.”
There is "only one true fiduciary standard, and it means an affirmative obligation to act in the best interests of the client and to put the client's interests above one's own," said Commissioner Aguilar.
J. Boyd Page, senior partner of Page Perry LLC in Atlanta, said “We applaud Commissioner Aguilar’s staunch position. Broker-dealers are constantly holding themselves as professional financial advisers and soliciting clients to trust them because of their special expertise. When they solicit this trust and confidence from investors and earn money in doing so, they should be held to a real fiduciary standard.”
