The Securities and Exchange Commission, as required by the Dodd-Frank financial reform law issued a report to Congress on Friday advocating that any investment professional, stockbrokers and investment advisors providing personalized investment advice to retail customers would have to adhere to a fiduciary standard, including the duty of loyalty, and the duty of care, in connection with the recommendation of investments and investment services.
According To The SEC Report
Retail investors seek guidance from broker-dealers and investment advisers to manage their investments and to meet their own and their families’ financial goals. These investors rely on broker-dealers and investment advisers for investment advice and expect that advice to be given in the investors’ best interest. The regulatory regime that governs the provision of investment advice to retail investors is essential to assuring the integrity of that advice and to matching legal obligations with the expectations and needs of investors.
Broker-dealers and investment advisers are regulated extensively, but the regulatory regimes differ, and broker-dealers and investment advisers are subject to different standards under federal law when providing investment advice about securities. Retail investors generally are not aware of these differences or their legal implications. Many investors are also confused by the different standards of care that apply to investment advisers and broker-dealers. That investor confusion has been a source of concern for regulators and Congress.
According to the SEC’;s report, there are over 11,000 investment advisers are registered with the Commission. As of September 30, 2010, Commission-registered advisers managed more than $38 trillion for more than 14 million clients. In addition, there are more than 275,000 state-registered investment adviser representatives and more than 15,000 state-registered investment advisers.
The Standard if Conduct
The Report suggests that the standard of conduct for all brokers, dealers, and investment advisers, when providing personalized investment advice about securities to retail customers (and such other customers as the Commission may by rule provide), shall be to act in the best interest of the customer without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice.
Both investment advisers and broker-dealers would continue to be subject to all of their existing duties under applicable law; and most importantly, it would require that investors receive investment advice that is given in their best interest, under a uniform standard, regardless of the regulatory label (broker-dealer or investment adviser) of the professional providing the advice.
Currently, the Commission oversees approximately 5,100 broker-dealers with over 600,000 registered representatives engaging in a variety of business activities, which may or may not include the provision of personalized investment advice or recommendations about securities to retail customers. Of the 5,100 registered broker-dealer firms, 985 have indicated on Form BD that they engage in, or expect to engage in, investment advisory services constituting one percent or more of their annual revenue.
Securities Industry & Financial Markets Association Disagrees
The Securities Industry and Financial Markets Association, which represents securities firms, banks and asset managers, does not like the report. In a statement, the industry group cautioned the commission to take care “to ensure that the broker-dealer role is not hindered.” In the past, some brokers have warned that a fiduciary standard would force them to dump less profitable clients or adopt a fee-only business model.
Guiliano Law Firm
The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Firm, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.