Whether a uniform fiduciary standard will be applied to all financial advisors is, once again, a big question mark.
Senator Tim Johnson (R- S.D.), incoming Senate Banking Committee Chair, began floating an amendment last week that would eliminate from Senate regulatory reform legislation the application of a fiduciary standard to investment advice provided by brokers. Instead, Johnson’s amendment calls for an 18-month SEC study on the fiduciary issue.
Consumer advocates say the call for another study is simply a delaying tactic, or perhaps a negotiating tool, that will make the House of Representatives version of the regulatory reform bill seem like a fair compromise. The House bill, passed in December, would require the SEC to write new rules extending fiduciary duty to brokers, which consumer advocates say would likely result in a looser standard for brokerage firms.
The House bill was supported by SIFMA, and lobbyists for the brokerage industry had been pushing the Senate Banking Committee to adopt the fiduciary provisions of the House bill. In its current form, the Senate bill, by contrast, would have eliminated the distinction between financial advisors and brokers all together, bringing them all under same fiduciary standard, without giving the SEC rule-making wiggle room.
“You’ve got to give the brokers, unlike the insurance lobbyists, some credit for supporting the house proposal,” says Mercer Bullard, president and founder of Fund Democracy, a consumer advocacy group. “The brokers aren’t that concerned about the House bill. They believe the SEC will draw a line in a way that favors them, but it will bring more advice under a fiduciary duty.” Even Bullard favors the House bill over Johnson’s amendment. “The Johnson amendment would send us in the opposite direction. The SEC would be paralyzed by this infectious study. I can’t believe anyone on the hill thinks there is some issue that has yet to be plumbed by analysts.”
Rand Corp., a nonprofit, conducted a study on the investment advisory and brokerage industries in 2008 for the SEC that found that investors were confused about the distinctions between different financial advisor professionals.
Of course, at this point, some question whether financial services regulatory reform will pass at all. Sponsored by Senator Christopher Dodd, current Senate Banking Committee Chair, the bill is held up while Dodd seeks support from at least one Republican member of the committee. After talks recently fell through with Richard Shelby, the ranking Republican on the committee, Dodd began negotiating with Senator Bob Corker, (R-Tennessee).
“Dodd’s got to get at least one Republican of the ten on the committee to go along with the bill,” says David Tittsworth, executive director of the Investment Advisor’s Association. “Corker has said it’s an awkward situation for him because the Republicans are saying don’t negotiate at all, but he thinks financial services reform is a high priority.”
The fiduciary issue is not, however, one of the major sticking points in wrangling over the legislation. “The big issues are banking regulations, systemic risk, credit rating agency reform, derivatives, executive compensation, the Consumer Protection Agency,” says Tittsworth. “Unless and until there is some kind of deal on the bigger issues, nothing has changed, and nothing else will happen. If there is [a deal], Johnson can offer his amendment, other people can come in and offer their own amendments. It’s a long ways to first base right now,” he continues. And in an election year, time can run out pretty quickly. “The politics just become harder the longer this thing hangs out there.”
