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Sen. Dodd Describes Dodd-Frank Mandated SEC Study on Broker and Adviser Standard of Care

By Jim Hamilton

Section 913 of the Dodd-Frank Act requires the SEC to conduct study of the standard of care for brokers and advises, as well as authorizing the SEC to adopt a uniform federal fiduciary duty for brokers and advisers. Among other things, Section 913 requires a review of the effectiveness, frequency and duration of the regulatory examinations of brokers and investment advisers. In this review, according to Senator Chris Dodd, the paramount issue is effectiveness. If regulatory examinations are frequent or lengthy but fail to identify significant misconduct, he reasoned, they waste resources and create an illusion of effective regulatory oversight that misleads the public. (Cong. Record, July 15, 2010, S5929).

Senator Dodd said that the SEC, in studying potential impacts that would result from changes to the regulation or standard of care, should seek to preserve consumer access to products and services, including access for persons in rural locations. In assessing the potential costs and benefits, the SEC should take into account the net costs or the difference between additional costs and additional benefits. For example, it should consider not only higher transaction or advisory charges or fees but also the return on investment if an investor receives better recommendations that result in higher profits through paying higher fees. After reporting to Congress, the SEC is required to consider the findings, conclusions, and recommendations of its study. (Cong. Record, July 15, 2010, S5929).

Full post as published by Jim Hamilton's World of Securities Regulation on September 07, 2010 (boomark / email).