A proposed fiduciary standard for all financial advisors is back in play as the U.S. Senate debates financial services reform-and backers of the measure may have Goldman Sachs to thank.
The fiduciary standard failed to make it into the Senate version of the bill when it was introduced in March, but an amendment sponsored by Sens. Daniel Akaka (D-Hawaii), Robert Menendez (D-New Jersey) and Richard Durbin (D-Illinois) would insert the language.
Members of the Financial Planning Coalition, which has been pushing for the provision, held a press conference today urging passage of the amendment, which is virtually identical to language contained in the House version of the reform legislation. A vote on the measure could happen as early as tomorrow, coalition members said.
They said their effort has gained renewed momentum as a result of the Securities and Exchange Commission's fraud charges against Wall Street giant Goldman Sachs.
"It gave new impetus to dealing with this issue and put it back on the table," said William Baldwin, chair of the National Association of Personal Financial Advisors (NAPFA). The coalition's members are the NAPFA, the Financial Planning Association and the CFP Board of Standards.
The application of a fiduciary standard on brokers and insurance agents-in addition to the investment advisors who already are obliged to follow the standard-has been a controversial issue for years, but has once again become a cutting-edge issue as Congress responds to the collapse of the financial markets in 2008. It would require all advisors to act in the best interest of their clients. Brokers and insurance agents currently work under a rule that requires them to recommend investments that are suitable for the client.
It was originally omitted from financial reform legislation introduced in the Senate, largely due to lobbying by the insurance and brokerage industries, who argue that the suitability requirement provides adequate protections without restricting the products available to clients.
Coalition members, however, argued that a uniform fiduciary standard is a proposal whose time has come.
Richard Salmen, chairman of the FPA, said accusations that a fiduciary standard would increase costs to investors are among the "myths" about the measure. "In reality, this would reduce costs by imposing a fiduciary standard that requires brokers to consider investors' costs in a way they are not required to do under a suitability standard," he said.
They noted that the fiduciary standard has been debated since the 1980s, when brokers first started providing investors with financial planning services.
"The time is now-we've waited long enough," said Robert Glovsky, chairman of the CFP Board. "We don't need to study this anymore. This is really a pro-consumer act that deserves everyone's support."