SEC considering fiduciary standard for brokers
The SEC announced that it will soon decide whether brokers owe their clients a duty to provide investment advice that is in their best interests.
Federal regulators are currently debating a change in the rules regarding the type of relationship brokers should have with investors. While a final decision is forthcoming, some experts have expressed concern that the rules may not go far enough in protecting investors.
At the heart of the current debate is whether brokers should be required to provide advice that is in the best interests of their clients. Generally speaking, this requirement to provide advice in a person’s best interest is known as a fiduciary duty. A failure to meet with this requirement would be considered to be a breach of fiduciary duty.
Currently, brokers are not required to offer advice that they believe to be in their clients’ best interests. Rather, brokers are generally held to a suitability standard. This means that they must believe that their investment advice is suitable for their clients’ age, objectives and income.
In 2010, Congress passed the Dodd-Frank Act, which required the U.S. Securities and Exchange Commission to look into whether a change to the current suitability standard was warranted. Earlier this year, the SEC announced that it had concluded its study and that it would announce its decision by the end of the year.
Those who support the change to a fiduciary standard for brokers say that the rule change is needed because few investors understand the current standard. This means that many people choose investments without understanding that their brokers are selling particular products because it allows them to earn commission. Many investors erroneously believe that brokers are required to provide financial advice that is in their best interests.
Those who are against the change say that it would lead to substantial for brokers without adding any significant protections for investors. In fact, the additional costs associated with complying with a fiduciary standard could lead brokers to drop lower income clients, the very individuals the rules are designed to protect.
It is currently unclear whether the SEC is planning to unveil a new fiduciary standard later this year. It is also possible that the agency could simply adjust the current rules. In any event, the SEC’s announcement could change the way that brokers offer products and services to investors.
Of course, fiduciary duties exist in contexts other than the financial world. In some cases, a business owner may owe a fiduciary duty to his partners or a corporation may owe a fiduciary duty to its shareholders. To learn more and to discuss your rights, speak to an experienced business law attorney.
Keywords: Breach of fiduciary duty