Wednesday, June 17, 2009

Administration Plans Fiduciary Standard for Brokers

And it begins. A market crash, a major ponzi scheme, and new regulations. The Obama administration announced today that it will propose to establish a fiduciary duty for broker-dealers offering investment advice and harmonize the regulation of investment advisors and broker-dealers.

The move is being praised by investment advisor organizations and by consumer groups, but the entire debate is something of a tempest in a teapot. Brokers are not fiduciaries when they act as brokers, but the distinction has, for the most part, been lost over the years, as brokers take a more advisory role in their relationship with their customers, and many brokers today offer advisory services to their customers.

The interesting part of the announcement was FINRA's response. According to, FINRA's President hailed the call for harmonization. He also pushed for putting investment advisors under FINRA regulation. With 25,000 investment advisory firms in the country, FINRA has not explained how it is going to regulate 25,000 new firms when it cannot properly regulate the 5,000 or so broker-dealers that it is currently charged with responsibility for regulating.

The quote from FINRA is priceless - “Finra is uniquely positioned to build an oversight program that ensures investment advisers are properly examined and their customers are adequately protected."

Madoff's firm was under FINRA's jurisdiction, and is currently in SIPC liquidation because his massive fraud was not discovered by FINRA or the SEC, both of which had jurisdiction over him.

Obama administration to create a fiduciary standard for broker-dealers - Investment News

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