Friday, April 23, 2010

NASAA Backs Akaka-Menendez Fiduciary Duty Amendment

The North American Securities Administrators Association (NASAA) has joined AARP, the Consumer Federation of America, and the National Association of Secretaries of State in urging members of the U.S. Senate to co-sponsor an amendment to the Restoring American Financial Stability Act of 2010 (S. 3217) that would place a fiduciary duty on brokers who provide investment advice to their clients. In a letter today to the full Senate, the organizations asked lawmakers to support the amendment proposed by Senators Daniel Akaka (D-HI) and Robert Menendez (D-NJ) which would replace language in the bill calling for a study of investment adviser regulation with a stronger measure approved by the House of Representatives. Under the House provision, the U.S. Securities and Exchange Commission (SEC) would be required to adopt rules under the Securities Exchange Act of 1934 to require brokers to act in the best interests of their customers when giving personalized advice to retail customers. The organizations noted that the approach approved by the House has won broad support not only from a variety of groups but also from SEC Chairman Mary Schapiro.

The organizations stressed to the lawmakers that brokers and insurance agents frequently market themselves to investors as trusted advisers, yet they are not currently subject to the same legal responsibilities placed on investment advisers to act in the best interests of their clients. The organizations believe that reform in this area is critical because research has shown that investors do not understand the difference between brokers and advisers. Moreover, retail investors rely heavily on the recommendations they receive. As a result, middle income Americans who can ill afford in even the best of times the high costs of deceptive sales pitches find themselves even more vulnerable in the aftermath of the recent financial crisis.

The organizations sharply criticized the approach favored by certain industry members which would maintain the status quo in which brokers and insurance agents portray themselves to their clients as advisers without having to meet the standards appropriate to that role. In the organizations' view, the current language in the Senate bill will not serve to protect investors from biased investment advice. Rather, the organizations believe, the current provision would waste the SEC's time and resources in a needless and duplicative study while denying to the agency the authority to address a known and pressing disparity in the levels of investor protection.