(Dow Jones) If the insurance industry wants to keep the regulators off the backs of broker-dealers, it has an odd way of going about it: By riling the Securities and Exchange Commission.
The rebirth of a proposal to make all financial advisors put their clients' interests first has the National Association of Insurance and Financial Advisors, or Naifa, up in arms again. In a renewed effort to sink the idea for a second time, the interest group tried leveraging a few words from a prominent SEC official and now is accused of mischaracterizing his remarks.
Naifa's members are a substantial force in the selling of insurance investment products, such as annuities. The interest group opposes an amendment to sweeping financial-overhaul legislation that would force broker-dealers to meet the same fiduciary standard that applies to registered investment advisors. They'd be required to always act in the best interests of their clients and disclose any conflicts of interest.
An email to federal lawmakers from Naifa Government Relations urged them to vote against the amendment and claimed that "SEC Commissioner Luis Aguilar agrees that 'No standard, not even the fiduciary standard, has teeth unless it is properly implemented and enforced.'"
The email, dated Friday, said Aguilar made the remarks in a speech in March. Naifa also said that the SEC's Office of Compliance Inspections and Examinations already faces a challenging workload.
On Tuesday, a clearly irritated Aguilar issued a statement expressing "unequivocal support" of a fiduciary requirement for broker-dealers who provide investment advice. "An excerpt from one of my speeches has been taken out of context to indicate otherwise," he said in the statement.
Naifa tried to backpedal on Wednesday in a written statement, saying that the Aguilar quote was meant only to show the SEC's concerns about enforcing a fiduciary standard and not to characterize his position on the question.
In fact, an official SEC transcript shows Aguilar did use the words Naifa attributed to him in the March speech--but that his support for extending the fiduciary standard was clear. He also said this in the speech:
"The fiduciary standard has served advisory clients well for many years, and I believe that it should be the governing standard whenever investment advice is provided. If you are giving advice to an investor, regardless of the title on the business card, you should always be bound to do so in the best interests of the client. While the scope of service may vary between clients, the standards of loyalty and care in providing that service should not. You simply cannot be three-quarters of a fiduciary."
The new amendment is sponsored by Democratic Sens. Daniel Akaka of Hawaii, Bob Menendez of New Jersey and Dick Durbin of Illinois and restores language similar to that in a draft bill circulated in late 2009 by Senate Banking Committee Chairman Christopher Dodd. That language never made it into the bill that was later passed by the Senate Banking Committee. Naifa was a major lobbying force behind its demise. A provision requiring the SEC to study the issue was inserted instead.
The government's recent civil fraud charges against Goldman Sachs in a derivatives sale, and the high-profile hearings by a Senate panel on that case, gave the measure a second life. The new amendment mirrors a provision in a financial reform bill passed by the U.S. House of Representatives in late 2009. Both would empower the SEC to write rules to apply the fiduciary standard to brokers.
"Even though the (Goldman) question wasn't quite on point, the hearings changed the tone in Washington," says Robert Glovsky, chairman of the Certified Financial Planner Board of Standards.
Still, Naifa isn't backing down. It wants the provision calling for more study to remain in the bill
"What's changed is the environment in which this amendment is being debated," says Barbara Roper, director of investor protection for the Consumer Federation of America. "What hasn't is the adamant opposition from the insurance industry."
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