Updated Sunday, June 27. The full bill is now available.
After a herculean 20-hours straight of negotiations, Congressional committee members agreed Friday morning to a Wall Street reform package that will be much tougher on the country’s banks. The full 2,000 page bill (click here to download), with all of its amendments, counter-proposals, and last-minute deals, became available over the weekend. The bill must still pass both chambers of Congress, and is scheduled to go to a vote in the House on Tuesday and the Senate thereafter. If it passes, and most observers expect it to, it would then be signed into law by President Barack Obama before the July 4 recess.
On fiduciary duty, the most important issue in the bill for most financial advisors, Congressional leaders agreed to a compromise (click here to download) that would allow the regulator to extend the fiduciary standard as defined under the Investment Adviser's Act of 1940 to brokers, without requiring rulemaking or setting a timetable for it. The SEC must first study the issue of regulatory harmonization between brokerages and investment advisors, with a report to be completed 6 months after the bill is signed into law.
The final provision on fiduciary duty was a partial victory for supporters of a fiduciary standard for brokers. Some were disappointed that the bill does not outright require that the SEC extend a such a standard to brokers, but others said they expect the SEC will write a rule that does so anyway. There is already a lot of support inside the SEC for such a rule—SEC Chairman Mary Schapiro and commissioners Elise Walter and Luis Aguilar have publicly come out in favor of a fiduciary standard for brokers. But of course, broker/dealer and insurance groups will have some time to pressure the regulator not to write a rule or to be lenient in its application.
“The final product was a lot better than the Senate offer that was pending Tuesday night, which I would describe as horrific,” said David Tittsworth, executive director of the Investment Advisors Association, a trade group representing the interests of investment advisers. “But I think it’s too early to break out the champagne. All of the decisions that will either improve investor protection or affect investment advisors and brokers, all of those are yet to be made by the SEC.”
There are a few carveouts for certain broker/dealer activities written into the bill. For one, the fiduciary standard would only apply when a broker is providing personalized investment advice about securities to retail customers. “That’s more narrow than just getting rid of the b/d exclusion under the Adviser’s Act, I guarantee you,” says Tittsworth. “There are also provisions that say that just because you receive commissions doesn’t mean you violate the fiduciary duty under the Advisers Act, or just because you sell proprietary products doesn’t mean you violate the fiduciary duty under the Advisers Act. And it also says that the fiduciary duty won’t be extended past the time when you’re giving advice—the discount brokerage fix.”
In a public statement, The Fiduciary Committee, a lobbying group made up of a number of registered investment advisers and other members of the industry, called the bill a “major step forward,” but said “this campaign is far from over” and noted that there are certain limitations on the standard, including the fact that “the application of the standard when proprietary products or a ‘limited range’ of products are available is uncertain.”
Other Key Provisions For Investment Advisors
SEC Self-funding: Conference members did away with the self-funding provision in the Senate bill. Instead there’s a $100 million fund that the SEC will be able to access subject to oversight.
State vs. SEC oversight: The minimum AUM for SEC oversight of RIA firms climbs to $100 million from $25 million, but does not apply to those RIAs that are registered with 15 or more states.
Accredited Investor Standard: The value of an individual’s home will no longer count towards the $1 million net worth required to meet the accredited investor standard. The bill will also give the SEC the authority to review this standard.
Mandatory arbitration: The SEC now has authority to prohibit mandatory arbitration and to study the effects, benefits, downsides of it.
Hedge fund registration: Only hedge funds with $150 million or more in assets must register with the SEC.
Equity-indexed annuities: Oversight will remain with states rather than moving to the SEC.
Here is a summary of other major provisions in the bill from The Wall Street Journal.
