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Senator Dodd on Fiduciary Duty: Can He Withstand the Lobbyists?

After Senator Christopher Dodd’s surprise announcement last week declaring he would not seek reelection, many have begun to wonder about the policy ramifications this development will have on the remainder of his term in office. Financial reform is one such area of policy reform that the senator is tackling with much speculation over his resolve concerning fiduciary duty reform.

The two bodies of thought that have emerged on both sides of the aisle favor either a strong or a weak fiduciary duty provision. The strong provision would clearly put broker-dealers under the current fiduciary duty requirements levied on registered independent advisors (RIAs) by requiring such brokers to register as RIAs. The weak provision would require brokers to be registered as RIAs, however, the Securities and Exchange Commission (SEC) would be given more authority to write the new fiduciary duty at some time in the future. This position is adamantly supported by the banking industry as it is far less definitive than the strong provision and is more likely to result in little change to the business model of broker-dealers than the alternative.

Dodd currently supports the so-called strong provision, this being in contravention of the House approved language in the Wall Street Reform and Consumer Protection Act of 2009. Many who advocate for the strong provision are hoping that by announcing his decision to relinquish his seat, Dodd will be freed from listening to the lobbyists of the banking industry and therefore will more steadfastly pursue the strong provision before his time in the Senate comes to a close.

Even if Dodd’s resolve remains unfazed by lobbyists’ attempts to change his position, it remains to be seen if other members of the Senate will act likewise.