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Securities Compliance Sentinel Analysis of cutting-edge securities industry issues

To Be Or Not To Be . . . A Fudiciary Is The Question

Posted in Broker-Dealer Regulation, Compliance and Supervision, Dodd-Frank, FINRA Compliance, FINRA Enforcement, Investment Adviser Regulation, Registered Representatives, SEC Compliance

ComplianceEX recently published an article by Julie DiMauro regarding the debate, albeit not as pronounced as of late, over whether broker-dealers should be subject to a fiduciary duty standard of care similar to that of registered investment advisers. The article highlighted one investment adviser group (the Committee for Fiduciary Standard) who is lobbying Congress to adopt a strong fiduciary duty standard.  Conversely, according to ComplianceEX, the Financial Services Institute is promoting a universal standard of care, rather than a fiduciary duty.

The primary focus of those who oppose an uniform fiduciary duty standard is that converting to this standard would come at a great cost to broker-dealers and, in turn, the investing public.  The opponents contend that converting to a fiduciary duty standard will require additional documentation and registration requirements, as well as enhanced liability under the new standard.  All of this will come at a cost; a cost that will surely be passed on to the investing public.  This increase in cost, some say, may result in broker-dealers requiring higher minimum investments as a hedge against those costs.  The downside of this requirement could be that some segment of the public may lose an avenue for investment.

The article shows that the debate is long from over and likely to heat up once again when the SEC receives more pressure for the results of its cost-benefit analysis regarding a uniform fiduciary duty standard.  Such a study will surely show that there will be a large increase in the costs to broker-dealers to convert to this new standard of care.  In the end, the more likely result will be no uniform fiduciary duty, but a much more aggressive FINRA through rule-making and enforcement.  The old adage of be careful what you wish for may be coming to roost for broker-dealers.