Much is being made of SEC Chair Mary Schapiro's testimony in front of the Financial Crisis Inquiry Board on January 14 regarding her comments about the reregulation of financial advisors. About a fiduciary duty for advisors, Ms. Schapiro said: "When investors receive similar services from similar financial service providers, it is critical that the service providers be subject to a uniform fiduciary standard of conduct that is at least as strong as exists under the Investment Advisers Act [of 1940], and equivalent regulatory requirements, regardless of the label attached to the service providers."
To be fair, her remarks do sound a lot like the position that I and other observers have been advocating, namely, that simply eliminating the "broker exemption" to the '40 Act, would greatly benefit the public. Without that exemption, brokers would have to register as investment advisors, and become subject to all the obligations that RIAs currently have, including a fiduciary duty to their clients. This would indeed be the most beneficial advance in protection for financial consumers in 70 years.
But don't be fooled: Just because a quick read of Ms. Schapiro's remarks sounds like a win for consumers doesn't make it so. To my mind, the most important part of her testimony comes in those three little words: "receive similar services." In other words, brokers should be regulated as RIAs "when they give advice," and conversely, not held to an RIA standard when they don't.
