Dale Brown, President and CEO of the Financial Services Institute (“FSI”), wrote a letter to Representative John Kline, (R – MN) Chairman of the U.S. House Education and Workforce Committee and to ranking member George Miller, (D – CA) in response to comments made by Phyllis Borzi, Assistant Secretary of the Department of Labor, (“DOL”) in a letter to the same members of the Committee. Borzi told the ranking members she was disappointed with the lack of participation in the DOL’s request for data as part of its “effort to expand the definition of fiduciary under the Employee Retirement Income Security Act of 1974 (“ERISA”).”In Brown’s letter he is critical of DOL Assistant Secretary Borzi for what he calls an impractical request.
Category Archives: Fiduciary
New Suitability Rule for Broker-Dealers is Similar to Fiduciary Duty of Investment Advisers
July 16, 2012
There has been a lot of discussion over the last year on the different standards for broker-dealers and investment advisers. Under current regulatory requirements, broker-dealers do not have a fiduciary duty to their clients. Broker-dealers must abide by the anti-fraud provisions of the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”) and must follow rules instituted by exchanges they are members of and the rules of the Financial Industry Regulatory Authority (“FINRA”). Investment advisers are largely governed by the Investment Advisers Act of 1940 (“Investment Advisers Act”), rules promulgated under the Investment Advisers Act, and state laws. Pursuant to the Investment Advisers Act, investment advisers have a fiduciary duty to their clients. Having a fiduciary duty to clients means that by regulation investment advisers are held to a higher standard than the standard that applies to broker-dealers. A study conducted by the U.S. Securities and Exchange Commission (“SEC”) in 2011 found that the average investor did not understand the difference between a broker-dealer and an investment adviser.
In August 2004, the U.S. Securities and Exchange Commission (“SEC”) adopted Rule 204A-1 under the Investment Advisers Act of 1940 (“Investment Advisers Act”) that required registered investment advisers to adopt codes of ethics. Under SEC Rule 204A-1, an investment advisory firm must adopt and implement a code of ethics, establishing rules and conduct all supervised persons must adhere to as a fiduciary. SEC Rule 204A-1 was adopted in attempt to create a standard of conduct that would “prevent fraud by reinforcing fiduciary principles that must govern the conduct of advisory firms and their personnel.” Section 206 of the Investment Advisers Act imposes a fiduciary duty on investment advisers by making it unlawful for an investment adviser to engage in fraudulent, deceptive or manipulative conduct. In its role as a fiduciary, an investment adviser has a duty to serve the best interest of its clients; a duty to have a reasonable, independent basis for investment advice; a duty to ensure that its investment advice is suitable to the client’s objectives, needs and circumstances; and a duty to be loyal to client.
DOL to Seek More Industry Input before Imposing Fiduciary Rule
September 21, 2011
On Monday, the U.S. Labor Department (“DOL”) announced that it is delaying its fiduciary rule proposal until next year. The DOL is seeking to expand the definition of fiduciary under the Employee Retirement Income Security Act (“ERISA”) to include everyone who gives retirement advice. Expanding the definition of fiduciary would mean that everyone who gives retirement advice would always have to act in the best interest of the client.
During the keynote address at the Compliance and Legal Society of the Securities Industry and Financial Markets Association 2010 Annual Seminar on May 6, 2010 (click here to read the entire speech), Mary Shapiro, the Chairman of the U.S. Securities and Exchange Commission (“SEC”), stated that her staff is preparing to present to the full Commission a proposal regarding adoption of Form ADV Part 2.
House Financial Services Committee Advances Investor Protection Act
November 06, 2009
Here’s our update regarding proposed changes to the regulation of investment advisers.
The Securities Industry and Financial Markets Association (“SIFMA”) announced today that it supports the holding of broker-dealers and registered investment advisers to a new federal federal fiduciary standard when providing personalized investment advice. However, SIFMA noted that current standards and rules (apparently in lieu of a fiduciary standard) should apply to broker-dealers in those business areas where registered investment advisers do not offer services, such as raising capital for business or mergers and acquisitions.
On May 20, 2009, the U.S. Securities and Exchange Commission (“SEC”) announced that it had filed an emergency civil action charging Wealth Management LLC (registered investment adviser), James Putman (founder, majority owner and Chief Executive Officer of Wealth Management), and Simone Fevola (former President and Chief Investment Officer of Wealth Management) with engaging in a kickback scheme and other fraudulent conduct involving unregistered investment pools for which Wealth Management served as a General Partner or Managing Member and as the registered investment adviser responsible for managing the pooled assets.
The Adminstration Seeks Fiduciary Duty for B/Ds — Is the SEC Chairman Advocating the Establishment of an SRO for RIAs?
June 20, 2009
In the white paper, “Financial Regulatory Reform: A New Foundation,” recently released by the U.S. Treasury Department, the Obama Administration proposes the establishment of a fiduciary duty for broker-dealers offering investment advice and harmonization of the regulations of broker-dealers and registered investment advisers.
In a recent speech, Commissioner Elisse Walter of the U.S. Securities and Exchange Commission (“SEC”) advocated that every financial professional should act as a fiduciary and the regulations of broker-dealers and registered investment advisers should be harmonized.
