Broker-dealers may end up with a ‘hybrid’ fiduciary standard

October 3, 2011Articles Westlaw News & Insight Securities Blog

Recent Congressional hearings have placed one of the more controversial outcroppings of Dodd-Frank back into focus — the uniform fiduciary duty. In January 2011, the SEC issued a report under its Dodd-Frank mandate pursuant to which it recommended the adoption of a uniform fiduciary duty standard for those who provide personalized investment advice about securities to retail customers. Under the 1940 Investment Advisers Act, investment advisers already are subject to a fiduciary duty standard, whereas broker-dealers are only subject to a suitability standard. SEC Chairman Schapiro has directed her staff to recommend a proposal by the end of the year.

Even though the industry generally favors a uniform fiduciary duty, the debate has focused on whether broker-dealers should be subject to the same fiduciary duty standard as investment advisers, or something else. The Securities Industry and Financial Markets Association has taken the position that the new standard cannot be the same as that for investment advisers because the broker-dealer business model does not support such a standard. SIFMA has recently called for the SEC to provide a clear roadmap for this new standard so that broker-dealers can act accordingly going forward.