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Feb 02

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SEC Staff Report Suggests a Unified Fiduciary Standard

The staff of the Securities and Exchange Commission (SEC) issued a report required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  It recommends significant changes regarding how broker/dealers transact business with their retail investment customers. 

Investment advisors and security broker/dealers are both highly regulated.  But their regulations are quite different.  The SEC staff report is 166 pages long, plus a ten page executive summary and Appendix – 208 pages in total.  Most of this length is devoted to summarizing these numerous existing regulations.  Many have questioned whether these regulation differences are sensible, particularly when it comes to providing investment advice to retail investors. 

The SEC staff concluded:

 … there is robust recent evidence that many retail investors do not understand or are confused by the different standards of care applicable to investment advisers and broker-dealers and their respective associated persons.

…Retail customers do not understand and are confused by the roles played by investment advisers and broker-dealers, and more importantly, the standards of care applicable to investment advisers and broker-dealers when providing personalized investment advice and recommendations about securities. This lack of understanding is compounded by the fact that retail customers may not necessarily have the sophistication, information, or access needed to represent themselves effectively in today’s market and to pursue their financial goals. Retail investors are relying on their financial professional to assist them with some of the most important decisions of their lives. Investors have a reasonable expectation that the advice that they are receiving is in their best interest. They should not have to parse through legal distinctions to determine whether the advice they receive was provided in accordance with their expectations.”

These changes have been brewing for years, and have been resolutely resisted by the investment brokerage industry.   Representative of this controversy, the SEC received more than 3,500 letters while working on the fiduciary study.

This article describes the SEC Staff report and brokerage industry reaction in greater detail .

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2011/02/sec-staff-report-suggests-a-unified-fiduciary-standard/

2 comments

  1. Syreeta

    This can be some thing I need to find more information about, appreciation for the posting.

  2. hotshot bald cop

    I agree 100%

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