On the night of January 21st, 2011 the SEC submitted to Congress a staff study recommending a uniform fiduciary standard of conduct for broker-dealers and investment advisers when they provide personalized investment advice about securities to retail investors.
Why did the Dodd-Frank Act require this study?
Most Americans do not know the difference between a broker and an adviser nor do they understand the critical differences between the fiduciary standard and suitability standard.
A fiduciary standard refers to the duty to serve the best interests of its clients, including an obligation not to subordinate clients’ interests to its own. Included in the fiduciary standard are the duties of loyalty and care.
The suitability obligation generally requires a broker-dealer to make recommendations that are consistent with the interests of its customer.
So, who’s too scared to be a fiduciary?
We will find out in the second quarter when the SEC is scheduled to publish proposed regulations to provide that: “the standard of conduct for all brokers, dealers, and investment advisers, when providing personalized investment advice about securities to retail customers (and such other customers as the Commission may by rule provide), shall be to act in the best interest of the customer without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice.”
The next few months will exemplify the moral fortitude of our regulators.
Castle Rock Investment Company, formed in 2006, is an independent woman-owned SEC-registered investment adviser located in Castle Rock, Colorado. We specialize in individual financial plans and qualified service plans.