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Volume XII, Number 183

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Senate and House Strike Deal on Fiduciary Duty Issue

On June 24, 2010, lawmakers from the House and Senate working to merge two versions of the financial-regulation overhaul into a single bill agreed to let the SEC impose a fiduciary duty on brokers once the regulator completes a six-month review. House lawmakers had earlier proposed implementing stiffer rules without a study period, prompting opposition from senators led by Tim Johnson, a South Dakota Democrat.

Johnson proposed language that could have, among other things, maintained the study requirement. However, Johnson's proposal made it even more difficult for the SEC to act on its findings by allowing the SEC to set new rules regarding the fiduciary duty standard only if the agency concluded after its study that regulatory gaps between certain brokers and investment advisors could not be addressed through other approaches.

A fiduciary duty would obligate brokers to act in the best interest of their clients and to disclose all conflicts of interest. Brokers now only have to ensure a product is suitable before marketing it to a customer. As discussed in an earlier blog post, the expansion of the fiduciary duty has met resistance from the broker-dealer and insurance industries whose sales practices would be subject to the new fiduciary duty standard. Whereas consumer advocates have said the fiduciary obligation is needed because investors can be misled into buying products they don’t understand and are often confused by the titles used by financial advisers.

However, the debate is not over just yet, even if federal lawmakers pass the legislation. Once the job of conducting the study and making the rules goes to the SEC, the debate over the details of just how the new rules will apply will likely continue.

A copy of the Businessweek article discussing this development can be found here, and an article from Financial Advisor Magazine can be found here.

Reposted from Cosgrove Law’s Securities and Investment Blog Located at: http://www.cosgrovelawllc.com/blog.html

Copyright © 2022 Cosgrove Law, LLC.National Law Review, Volume , Number 178
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About this Author

David Cosgrove, Managing Partner, Financial and regulatory lawyer, Cosgrove Law Group
Managing Partner

Mr. Cosgrove represents financial professionals and entities throughout the nation.  He has obtained over $8 million in Awards and settlements for his adviser clients in U-5/tortious interference cases in just the last 7 years.  He also assists advisers and broker-dealers with regulatory inquiries, investigations, and audits.  Beyond the financial industry, he is an award winning trial attorney with a focus on commercial, defamation, and serious injury litigation.

Some of these results include:

  • Obtained over $3.3 million for an investment adviser and...
(314) 563-2492
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