Exclusive Online Only ContentSIFMA Panel Clashes on Fiduciary Duty
October 27, 2009
A panel of C-suite executives speaking on regulatory reform at the Securities Industry and Financial Markets Assn.’s annual meeting broadly disagreed today on what should be done about extending the fiduciary standard that currently applies to investment advisers to broker-dealers.
Under the Obama Administration’s regulatory reform plan, the SEC is authorized – but not required – to issue rules that extend the fiduciary duty standard that now applies to investment advisers to broker-dealers. SIFMA supports the Obama Administration’s plan, but stops short of calling for such fiduciary duty to be explicitly recognized in law.
Panel member and SIFMA board member John Taft, head of the wealth management division at RBC Wealth Management and chair of SIFMA’s private client group, said that when SIFMA “got word that anyone who provides advice would be subject to a federal fiduciary standard,” SIFMA “decided to embrace [the Administration’s plan] ” Additionally, he said that SIFMA has called for a new federal fiduciary standard that supersedes what currently exists, which he called a “basket of common law precedent.”
However, SIFMA wants to limit the standard to personalized investment advice about securities provided to individual investors, Taft said. Institutional investors would not be covered. SIFMA is also against Congress passing any law, and has opted instead to recommend that the matter be handed over to the Securities and Exchange Commission (SEC) for rulemaking. “This issue will take as much time as any” that is before SIFMA this year, said panel moderator T. Timothy Ryan, SIFMA’s president and CEO.
“Waste of Time”
Putting fiduciary duty at the top of SIFMA’s list of priorities is a bad idea, countered panel member Ronald J. Kruszewski, chairman and CEO of Stifel Nicolaus & Co. Saying that focusing on the issue is “a waste of time,” Kruszewski said that “a federal fiduciary standard is a solution looking for a problem. At my firm, this is not a problem. I can’t believe it is at the top of our priority list.”
Taft countered that “in the average investor’s mind, there is a perception that our interests are in conflict with those of our clients. We have to restore investor trust and confidence.”
A third panel member, William A. Johnstone, president and CEO of Davidson Cos., said that “The fiduciary initiative is important. I think it is a positive change.”
Fiduciary duty – the highest legal standard -- requires the investment adviser to put the client’s interests above their own. Under the Investment Advisers Act of 1940, which exempts broker-dealers, investment advisers owe a fiduciary duty to their clients. State securities regulators and consumer advocates are urging Congress to seek revisions to the Securities Exchange Act of 1934 – the federal law regulating broker dealers -- to extend fiduciary duty to broker-dealers.
