Corporate & Securities Law

By Jim Hamilton

NASAA Urges Extension of Treasury's Fiduciary Duty Proposal

The North American Securities Administrators Association (NASAA) has joined several other public interest organizations in expressing strong support for the proposal in the Obama Administration's White Paper on financial regulatory reform to subject all those who provide investment advice to a fiduciary duty to act in their clients' best interests. NASAA joined the Certified Financial Planner Board of Standards, the Consumer Federation of America, the Financial Planning Association, Fund Democracy, the Investment Adviser Association, and the National Association of Personal Financial Advisors in submitting comments on the proposal in a letter today to the leadership of the House Financial Services Committee. The organizations also expressed pleasure at the speed with which the Treasury Department has moved to adopt these reforms in its proposed "Investor Protection Act of 2009," draft legislation released last week to Congress that would incorporate several of the investor protection priorities reflected in the White Paper.

Although noting that they represent diverse interests and constituencies, the organizations stated that a fiduciary duty should apply to all who give financial advice to clients. Accordingly, the organizations believe that the White Paper's call for the imposition of a universal fiduciary duty on both broker-dealers and investment advisers proposes an appropriate solution to the problem of brokers who have been allowed to offer extensive advisory services without having to comply with the Investment Advisers Act of 1940.

The organizations fear that Section 913 of the Treasury Department's proposed legislation, however, may fall short of that goal. Section 913 authorizes, but does not require, the U.S. Securities and Exchange Commission to issue rules that would that "in substance" provide that the "standards of conduct for all brokers, dealers, and investment advisers, in providing investment advice about securities to retail customers or clients . . . shall be to act solely in the interest of the customer or client without regard to the financial or other interest of the broker, dealer or investment adviser providing the advice."

Although applauding the provision's intent, the organizations believe that revisions will be needed. Specifically, the organizations believe that the legislation should be revised to "unambiguously provide for the extension of the overarching fiduciary duty that investment advisers owe their clients under the Advisers Act to brokers and others who provide investment advice, that this fiduciary duty is explicitly recognized in law, and that the legislation does not in any way undermine the fiduciary duty that already exists under the Advisers Act."

Full post as published by Jim Hamilton's World of Securities Regulation on July 15, 2009 (boomark / email).