SEC Report: Broker-Dealers Should Be Subject To Fiduciary Standard

By Mark Barnicutt on January 22, 2011

In a much-anticipated report, the SEC (Securities & Exchange Commission) in the United States late Friday night recommended to Congress that broker-dealers be subject to the same fiduciary standard that applies to investment advisers.

This issue of fiduciary standards has been a major lobbying matter in the United States for the past several years, and something that we’ve commented on previous blog posts of The Wealth Steward.  Please click here for such a blog post about recent comments by the SEC Commissioner.

In the United States, currently, broker-dealers must only meet a suitability standard when providing personalized advice about securities to retail investors. But the Securities & Exchange Commission’s report calls on Congress to raise the bar by requiring brokers to act as fiduciaries, and thus put their clients’ best interests ahead of their own.

According to the report, many retail investors do not understand and are often confused by the different roles played by investment advisers and broker-dealers.  The study notes that “many investors are also confused by the standards of care that apply to investment advisers and broker-dealers.

While mandating a universal standard of care, the study recommends that retail investors should “continue to have access to the various fee structures, account options, and types of advice that investment advisers and broker-dealers provide.”

It will be interesting to see how this plays out in Congress as it’s clearly a contentious issue with many US brokerage firms who will be lobbying hard to prevent this change as it would mean a higher set of advice standards and responsibilities than what currently exists today.

As we noted in a recent article, What Is An Investment Fiduciary?, we believe that such a change, if enacted by Congress, would be a positive step forward for both investor clients and the wealth management industry.

With the growing affluence of our Canadian society, combined with the rising complexity of wealth management issues and the trusted role that wealth management advisors perform in clients’ financial lives, we believe that it’s time for Canadian regulators to re-examine the application of fiduciary standards to various wealth management roles as well.

About Mark Barnicutt

As HighView’s President, CEO, and Co-Founder, Mark Barnicutt is knowledgeable in all major functional areas of the family wealth business. He is an expert in wealth management, leading HighView with over 25 years of experience in the industry.
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