The Fiduciary Standard – Hope Remains

There may yet be hope for consumers of financial products and services. Senators Daniel Akaka (Democrat from Hawaii) and Robert Menendez (Democrat from New Jersey) have offered an amendment to the Financial Reform bill (Restoring America’s Financial Stability Act) that would remove a provision (Section 913) that would provide for a study of the whether the fiduciary standard should be imposed upon broker-dealers. The new language would mirror the House reform bill and authorize the Securities and Exchange Commission to adopt rules requiring broker-dealers who provide advice to comply with the fiduciary standard.

To review, under the current legal structure, most financial advisors, including stock brokers, insurance agents, and financial representatives in banks and credit unions are not required to put their client’s best interest first. Instead, they are required to offer products and services that are “suitable.” This is a lower standard than the fiduciary standard and leaves consumers vulnerable.

According to the web site fi360, there are five core principles to the fiduciary standard:

•Put the client’s best interests first;

•Act with prudence; that is, with the skill, care, diligence and good judgment of a professional;

•Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts;

•Avoid conflicts of interest; and

•Fully disclose and fairly manage, in the client’s favor, any unavoidable conflicts

I strongly support the inclusion of a fiduciary standard in the Financial Reform legislation. I see no point in “studying” this issue. It is rather obvious that financial advisors should be required to act in their client’s best interest.

The banking, securities, and insurance industries are lobbying Congress in an effort to prevent the imposition of the fiduciary standard. Make your voice heard and tell your representatives in the House and Senate that the fiduciary standard is imperative to meaningful financial reform in this country.