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January 22, 2010 |
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Senate Shake-Ups Unlikely To Impact Fiduciary Standard |
(Dow Jones) Recent shake-ups in the U.S. Senate could influence lawmakers' efforts
to reform the nation's hobbled financial regulatory system—but
probably not the development of a stringent fiduciary standard for
certain broker dealers.
Advisors say they expect the next three weeks to be crunch time for regulatory reform on Capitol Hill.
Congress reconvened from its winter recess on January 5 to face a
political landscape vastly different from the one it left weeks before.
The U.S. House passed landmark financial-services-reform legislation on
December 11. The 2010 session, however, began with a bombshell. Sen.
Christopher Dodd (D. Conn.) chairman of the Senate Banking Committee,
announced plans to retire. On Tuesday, Scott Brown won an upset victory
in the state's U.S. Senate race to become the first Republican senator
from Massachusetts in more than 30 years.
Uncertainty about Dodd's potential influence in his
remaining days and Brown's positions on regulatory specifics has lead
to some concerns that the Senate's financial services regulatory reform
efforts may be delayed or possibly gutted.
The discussion, which has kicked off with proposed
legislation drafted by Sen. Dodd, will undoubtedly include a type of
fiduciary standard for brokers who give advice.
A spokesman for Brown said the Senator elect hasn't yet
commented on the subject. Brown has said, however, that the financial
industry doesn't need more regulation—just better enforcement of
existing laws, according to the spokesman.
Barbara Roper, director of investor protection for the
Consumer Federation of America, questions whether Sen. Elect Brown's
victory will significantly affect fiduciary reform efforts. "I don't
know if one vote changes anything," she said. The proposed reform
wasn't a partisan issue in the U.S. House and may not be as senators
begin to debate the issue.
Based on comments from key figures in the industry and the
Securities and Exchange Commission, creating a uniform fiduciary
standard remains an important issue—and one that is becoming more
explicit.
"When investors receive similar services from similar
financial-service providers, it is critical that the service providers
be subject to a uniform fiduciary standard of conduct that is at least
as strong as exists under the Investment Advisers Act ... regardless of
the label attached to the service providers," SEC Chairman Mary
Schapiro recently told the Financial Crisis Inquiry Commission, in
prepared testimony.
David Tittsworth, executive director of the Investment
Adviser Association, a Washington, D.C.-based trade group, said that
Schapiro, who has spoken generally about a fiduciary duty in earlier
speeches, was getting "more specific."
Goldman Sachs Group Inc.'s chairman and chief
executive, Lloyd Blankfein, also told the commission investigating the
financial crisis that he supports a fiduciary standard for brokers who
provide advice to retail investors.
"The fiduciary standard puts the interests of the client
first. The advice-giving functions of brokers who work with investors
have become similar to that of investment advisers. But, investors may
not understand that the person they are getting advice from may be
regulated under different rules and regulations," he said, in prepared
testimony.
Knut Rostad, chairman of the Committee for the Fiduciary Standard, an advocacy group, called Blankfein's comments "huge."
"[He's] a symbol for an industry that until eight months ago has staunchly opposed the fiduciary duty," Rostad said.
Insurance groups, however, such as the National Association of
Insurance and Financial Advisors and the National Association of
Independent Life Brokerage Agencies, or NAILBA, may exert their
influence on some senators. They say Dodd's draft legislation doesn't
take into account how a fiduciary duty would affect the insurance
marketplace.
"Since insurance folks are dealing with specific products,
suitability is a more important standard of care," said Alex DelPizzo,
an insurance industry consultant with Washington lobbying firm Winning
Strategies. "The insurance industry's distribution model would be
altered, we'd have less people selling products and consumers would be
adversely affected," he said.
Copyright (c) 2010, Dow Jones. For more information about Dow Jones' services for advisors, please click here.
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