A bill proposed in November 2009 by U.S. Senator Christopher Dodd (D-CT), the Restoring American Financial Stability Act of 2009, would require stock and insurance brokers to register as investment advisers with the Securities and Exchange Commission. The Senate bill would subject brokers to the Investment Advisers Act of 1940 (the “Investment Advisers Act”). The bill is linked here: http://banking.senate.gov/public/_files/AYO09D44_xml.pdf
As a result, under Senator Dodd’s proposed bill, brokers would owe a fiduciary duty to their clients. That is, brokers would be required to put their clients’ interests first.
Currently, brokers need not necessarily put their clients’ interests first. Rather, stock and insurance brokers must recommend, to their clients, investments that are “suitable.” However, brokers presently are free to recommend, to their clients, the fund that pays the brokers the largest commission from among a group of suitable funds.
More specifically, section 913 of the Restoring American Financial Stability Act of 2009 imposes on brokers a fiduciary duty by eliminating the broker-dealer exclusion from the Investment Advisers Act. That statutory exclusion exempts brokers from registering as investment advisers if the brokers’ provision of investment advice to their clients “is solely incidental to” selling financial products and if the brokers “receive no special compensation for” providing such advice. Investment Advisers Act § 202(a)(11)(D), 15 U.S.C. § 80b-2(a)(11)(D).
The Bernie Madoff scandal prompted the heightened investor protections included in the proposed Restoring American Financial Stability Act of 2009.
As the Manhattan Times recently noted, http://www.nytimes.com/2010/02/16/business/16adviser.html , it is uncertain whether section 913 of the Senate bill will make it into the financial overhaul legislation which Congress ultimately passes. Consumer and investor groups strongly support applying a fiduciary standard to brokers, while the insurance industry forcefully opposes the imposition on brokers of such a standard.
If you or your company needs assistance or guidance concerning a securities dispute or a securities fraud matter and you reside in the Manhattan City area, call Attorney David S. Rich at (347) 941-0760.
David S. Rich is the founding member of the Law Offices of David S. Rich, LLC,
a Manhattan Employment and Business Litigation Law Firm, in New
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