Financial Services Institute Comments on Proposed Investor Protection Act; Supports Creation of New Universal Standard of Care in Financial Advice Industry

October 6, 2009 9:45 AM EDT

ATLANTA, Oct. 6 /PRNewswire/ -- The Financial Services Institute (FSI) - the leading legislative and policy advocacy voice for independent broker-dealers and independent financial advisors nationwide - today urged the House Financial Services Committee to apply a new universal standard of care to broker-dealers in addition to investment advisers under the currently contemplated "Investor Protection Act of 2009" (IPA).

In response to the proposed Investor Protection Act, Dale E. Brown, President and Chief Executive Officer of FSI, provided the following statement:

"We are suggesting another approach to harmonization of broker-dealer and investment adviser regulation that will work for all client situations, and across the broad spectrum of industry business models. As currently drafted, the proposed legislation seeks to make the fiduciary standard designed for Registered Investment Advisors, now under oversight of the SEC, also applicable to all financial advisors in the broker-dealer industry, without regard to important differences between these business models. Ultimately the proposal falls short of real protection for middle class retail investors for the following key reasons:

    --  The core issue the proposal attempts to resolve - bringing clarity to
        investors over the difference between investment advisors and
        broker-dealers - will not be addressed through the adoption of an arcane
        and opaque fiduciary duty as the standard of care for those dispensing
        investment advice;

    --  The term 'fiduciary standard' is subject to a variety of different legal
        definitions that fail to provide investors clarity as to the specific
        duties owed to them by their financial advisor;

    --  Imposing the so-called 'fiduciary standard' will have the unintended
        consequence of limiting middle class investor access to financial
        advice, products, and services by increasing costs and raising other
        barriers to entry;

    --  Any standard of care that is applied to all financial advisors must be
        combined with vigorous and effective enforcement to bring about real
        reform of financial services regulation.

FSI supports the creation of a new 'universal standard of care' for both Registered Investment Advisors and broker-dealers that is focused on the middle-class investor. The new universal standard of care we support would:

    --  Ensure transparent business relationships, effective client disclosures,
        and efficient low-cost investment solutions and operations;

    --  Place the interests of clients before the interests of the advisor;

    --  Avoid material conflicts of interest when possible, and obtain informed
        consent to act when such conflicts cannot reasonably be avoided; and,

    --  Provide advice and service with skill, care and diligence based on
        information known about the client's investment objectives, risk
        tolerance, financial situation and needs.

At the same time, we emphasize that it is critical for middle class retail investors that the lack of an efficient and effective regulatory examination and enforcement program for registered investment advisers be addressed as part of these reform efforts. Many of the financial advisors involved in recent high-profile fraud cases, such as Bernard Madoff, were subject to a 'fiduciary standard,' and yet were able to engage in fraudulent activities for years, due to the lack of effective, regular and vigorous oversight of their activities.

FSI believes middle class investors will be best-served by the creation of an industry-informed, self-funded regulatory authority dedicated to effective supervision, timely examination, and vigorous enforcement of both registered investment advisers and broker-dealers. Closing the regulatory gap between examination and supervision of registered investment advisers and broker-dealers will ultimately benefit investors by contributing to the transparency, effectiveness, and efficiency of the financial services regulatory structure.

The global economic crisis has provided Congress with a unique opportunity to reform the financial services regulatory structure, a process which, in our view, must ultimately be geared toward the best interests of Main Street America. We are committed to working constructively with all stakeholders in the development of a single universal standard of care that will promote and enhance middle class retail investor protections, while reducing inefficiencies inherent in the current regulatory system."

About the Financial Services Institute (FSI)

The Financial Services Institute (FSI) was formed in January 2004 as an advocacy and membership organization for independent broker-dealers and independent financial advisors. The organization's mission is to create a healthier regulatory environment for independent broker-dealers and their affiliated independent financial advisors through aggressive and effective advocacy, education and public awareness. Today, FSI is the voice for 114 independent broker-dealers, who collectively serve more than 152,000 independent financial advisors, and for more than 11,000 independent financial advisors who are individual members.

    Media Contact:
    Joseph Kuo or Sofia Mata-Leclerc
    Kekst and Company
    212 521 4863 or 212 521 4821
    joe-kuo@kekst.com or sofia-mata@kekst.com

SOURCE Financial Services Institute

Stocks Mentioned

Related Entities

• Bernard Madoff

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?