How do you pack 80 years of financial history into 15 minutes? That was the tall order given to Rutgers University law professor Arthur Laby at TD Ameritrade's 2013 Fiduciary Leadership Summit in Palm Beach, Fla., on Thursday.
The short oral history was billed as a way to set the stage for many of the fiduciary-related issues that would be discussed that afternoon.
Laby began by noting recent lawsuits brought by the Financial Planning Association and the Business Roundtable relating to the SEC's attempt to grant the brokerage industry fiduciary status "greatly influenced the debate."
He added that broker-dealers originally were just that; "brokers acted as agents for the client, while dealers acted as principals with the clients." They were subject to the Securities Exchange Act of 1934 under a separate SRO framework.
Investment advisors did not (and do not) not have an SRO framework and are regulated under the Investment Advisers Act of 1940.
As long as any advice broker-dealers offered was "incidental," and they did not collect "special compensation," they were not subject to regulation under the Investment Adviser Act.
"It worked pretty well for quite some time," Laby explained. "Then life got difficult in 1975. Until that time, commissions were fixed, almost like public utilities, but Congress eliminated fixed commissions."
It was around this time that broker-dealers began to market themselves as advisors.
