Concerned that Congress may pass a version of the Investor Protection Act containing a dramatically watered down version of a fiduciary standard for investment advice, a group of organizations representing both financial advisors and their clients has asked the chairs and ranking members of the appropriate committees to reconsider.
In a November 2 letter to the House Financial Services Committee and Capital Markets, Insurance and Government Sponsored Enterprises Subcommittee, representatives of the National Association of Personal Financial Advisors (NAPFA), the Financial Planning Association (FPA), the Certified Financial Planner Board of Standards, the Investment Adviser Association (IAA), the Consumer Federation of America, and Shareowners.org voiced their concerns.
The timing is particularly important, since the House Financial Services Committee plans to finish markup on the Investor Protection Act on the morning of November 4, and then vote on the bill.
Noting that the signatory organizations support a strong, universal fiduciary duty for investment advice, the letter noted "that goal is threatened by changes made to date during consideration of the Investor Protection Act. Unless these shortcomings are fixed before final approval, the legislation could set a standard for advice by brokers that falls well short of the full fiduciary duty under the Investment Advisers Act."
Specifically, the organizations are concerned "that, in describing standards of conduct, the phrase 'when providing personalized investment advice' might be used to argue that 'hat switching' by brokers is allowed; that the language requiring rulemaking by the Securities and Exchange Commission, which references personalized advice to retail clients, could be seen to narrow the existing fiduciary duty under the Investment Advisers Act, which does not vary depending on type of client served; and that the language which states that the standards adopted under the legislation should be 'at least as high' as those currently applied under the Advisers Act is only included in that portion of the legislation that amends the Advisers Act, which could lead some to conclude that the rules for brokers could meet a lower threshold."
The letter went on to note that, "There are now so many conditions and specific, potentially limiting, provisos in the amended language that it is unclear whether brokers that provide investment advice are truly fiduciaries subject to the full panoply of accompanying duties. Because we believe you intended to hold brokers that provide investment advice to the same overarching fiduciary principles applicable to investment advisers, we urge you to clearly confirm that this is the case in any Committee report language accompanying the legislation."
