The Battle Over a Fiduciary Standard for Financial Advisors

When the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Barack Obama on July 21, 2010, few people expected the heated debate that would ensue over applying a regulatory uniform standard for professional financial advisors .

The Securities and Exchange Commission (SEC) is the agency tasked with drafting a fiduciary or uniform standard to ensure that financial advisors are indeed placing the interests of their clients before their own. The proposed rule has the support from the White House and particularly from Neal Wolin, Obama’s Deputy Treasury Secretary.

At a speech given by Wolin at the Pew Charitable Trust in Washington, DC on Tuesday, April 19th, Wolin sharply addressed critics who have voiced their displeasure with how the Federal government has reacted to the Dodd-Frank rulemaking effort. According to Wolin, regulators have been criticized for not being transparent during the implementation process; or that perhaps they aren’t moving fast enough.

But some of the bickering and dissent involving the promulgation of a rule has been internal. Two of the SEC’s commissioners have objected to a staff report sent to Congress. Kathleen Casey and Troy Paredes, two Commissioners appointed by former President George W. Bush, have expressed their concern over the report lacking adequate analysis. Over in the House of Representatives, Republican members of the Financial Services Committee are asking the SEC to put the brakes on the project until reports have been thoroughly reviewed.

Deputy Secretary Wolin has indicated his endorsement of the concept of financial advisors being held up to fiduciary standards. And while the White House may also be interested in the speedy implementation of a fiduciary standard, Wolin has also warned that as an independent agency the SEC cannot be pressed by the Obama administration on how to handle the rulemaking.

To an outside observer, the matter may seem entirely political. On the legislative and regulatory arenas, the fiduciary standard is mostly opposed by Republicans. But the issue is clearly beyond the political scope. The insurance industry and Wall Street have emerged as strong opponents of the regulation. Their argument is based upon the idea that a universal fiduciary standard for financial advisors or broker-dealers would only increase licensing and compliance costs for the industry. These new costs would correspondingly be passed on to consumers, as it is traditional to do so in such situations.

Regulation of financial advisors is just one of the Dodd-Frank financial reforms bogged down by debate and resistance. Republicans and lobbying groups like the Securities Industry and Financial Markets Association have joined forces in opposition to what they consider an arbitrary rushing of sweeping regulations.

The SEC does not foresee completion of the fiduciary standard rules for investment advisors until late in 2011. Until then, the Treasury Department has pledged to trudge on with implementation of Dodd-Frank’s other reforms. The issue has also picked up further interest among financial advisors and broker-dealers who support the formation of a Self-Regulatory Organization to head the efforts of enforcing a fiduciary standard of care.

This post was written by Lisa Cintron from  They have advisors and financial planners in your state that can work with you at every stage of your financial life.  Check the out!

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7 thoughts on “The Battle Over a Fiduciary Standard for Financial Advisors

  • Just my opinion, but I see all this political maneuvering as merely leading to more of the same, more regulation, loopholes, unintended consequences and malfeasance.
    I’d rather see something along the lines of a private rating system, like Underwriters Laboratories.

  • There have been a lot of financial advisors that having been doing a lot of unethical things with peoples accounts and investing options

  • I was a big supporter of the Dodd-Frank reform, even though it is unnecessarily complex. I am also for holding financial advisors to fiduciary standards. As Robert said, anyone who is managing other people’s money should be held to this standard.

    As for the Republican’s (banking lobbyist’s) argument that it will be costly and burdensome, too bad. The financial services industry operated in a loosely-regulated environment for years and they used it to take advantage of their customers. Now, the government is getting involved and they have no one else to blame but themselves.

    The bigger problem, which isn’t being discussed, is how to safeguard depositors money. Everyday, there is a Madoff or Stanford type scandal happening on a smaller level and FINRA isn’t much help. This is devastating to investors and it would be so easy to avoid.

    I believe finaical advisors should be required to either desposit investors money with a third party intermediary or submit to independent annual audits.

    • The fact that some very large companies handling people’s money in a private placement environment don’t have to adhere to some standard blows my mind! I didn’t know that there were no overarching standards which in my mind makes it very, very easy for a Madoff type of scheme to happen. I’m sure they happen every single day. I’ve stopped my mother from investing in one of these things which later proved to me a scheme after she lost about 6K to another one of these scams. Some people don’t learn.

      • Sandy, I think the failure in oversight is apalling. I read the SEC had five separate complaints against Bernie Madoff and they investigated him four times. They never even cracked his books open once.

  • No matter how many Dodd-Frank Wall Street Reform and Consumer Protection acts are enacted, there will always be financial crooks, scammers and the Madoffs. That’s a given as long as humans are alive.

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