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Fiduciary Duty Reform Proposal May Backtrack on Previous Rhetoric

There is speculation this week that Senator Christopher Dodd (D-CT), will introduce new financial reform legislation that fails to create single fiduciary duty for Registered Independent Advisors (RIAs) and Broker-Dealers. This represents an expected 180˚on the subject of fiduciary duty reform in light of intense lobbying efforts by the financial industry.

The provision, rather than create a single standard, calls on the Securities and Exchange Commission (SEC) to conduct a study on regulatory standards in the RIA/Broker-Dealer field, and then propose rules on the issue. The provision was first circulated by Senator Tim Johnson (D-SD), a Banking Committee member, three weeks ago.

Those in the financial industry have heard about the potential of a single fiduciary standard applying to both RIAs and broker-dealers for years, yet such talk has remained just that, talk. As quoted by, Knut A. Rostad, Chairman of The Committee for the Fiduciary Standard, had this to say: “Studying this issue is a straw man… [t]here has been so much study that has been done over the past 15 years that the SEC has become a think tank on the issue of fiduciary issues, but the industry needs to explain why these investor protections should not be afforded to their customers.”

It remains to be seen if this proposal will be put forth, but if it is, such a move will undoubtedly signal a softening in the rhetoric of financial industry reform that has been tossed around following the subprime mortgage meltdown of two years past.