By Silla Brush - 05/24/10 10:50 PM EDT
House and Senate lawmakers overhauling Wall Street are clashing over whether brokers and insurance agents should have a fiduciary duty to their clients.
In the last six months, the two chambers passed measures that are similar in many respects. But the House and the Senate are starkly opposed on whether to extend to brokers and insurance agents the fiduciary duty that currently applies to financial planners and investment advisers.
The House voted to require the Securities and Exchange Commission (SEC) to issue rules giving broker-dealers and insurance agents the same duty to act in their clients’ interests as other advisers when they offer personalized investment advice to retail customers. A fiduciary duty is a responsibility to act on a client’s behalf when giving advice.
The Senate legislation would require the SEC to study gaps and overlaps in current regulations and then issue rules, if necessary, within two years of President Barack Obama signing the Wall Street bill into law.
House Financial Services Committee Chairman Barney Frank (D-Mass.), who will serve as chairman of the conference negotiations, supports the House-passed legislation.
“As we work to reconcile the House and Senate Wall Street reform bills, one of my high priorities will continue to be the enactment of a strong fiduciary standard for broker-dealers and investment advisers providing personalized advice to investors,” said Rep. Paul Kanjorski (D-Pa.).
The Senate legislation represented the aims of Sens. Tim Johnson (D-S.D.) and Mike Crapo (R-Idaho), who wanted the SEC to conduct a study before taking any action.
“Against a backdrop of regulation of financial professionals that is sometimes overlapping, but often very different, we believe the study we have developed will lead to better rulemaking and better protection for investors,” the senators wrote in a February letter to Senate Banking Committee Chairman Chris Dodd (D-Conn.).
Dodd replaced an earlier requirement for broker-dealers and insurance agents to register as investment advisers with the study provision.
Insurance interests and broker-dealers lobbied heavily, particularly in the Senate, saying current regulations have not been adequately studied.
The National Association of Insurance and Financial Advisors (NAIFA), National Association of Independent Life Brokerage Agencies (NAILBA), Association for Advanced Life Underwriting (AALU) and Edward Jones are pushing hard in support of the Senate study before new rules are issued.
“It’s not just a study, but a study and a directed rulemaking,” said Chris Morton, vice president of legislative affairs at AALU. “Life insurance professionals are really folks on Main Street.”
NAIFA President Tom Currey said the House version would require action before the necessary study.
“It really gives the SEC open-ended, non-directed authority to issue regulations as it sees fit without studying it,” Currey said of the House version.
Consumer advocacy organizations and financial planners argue the extension of a fiduciary duty is long overdue and has been studied before by the RAND group, which showed investors are confused by the differences.
“We don’t need to study it any more,” said Bob Glovsky, chairman of the board of the Certified Financial Planner Board of Standards (CFP Board). “To say, ‘Study it further’ is really just to kick it down the road and hope it goes away.”
The CFP Board is part of a coalition pushing for the new fiduciary duty. The Financial Planning Coalition also includes the Financial Planning Association and National Association of Personal Financial Advisors.
Members of a separate Committee for the Fiduciary Standard are planning to encourage lawmakers next week to support the House’s broader standard.
“This has always been an uphill battle,” said Knut Rostad, chairman of the committee. “One side has more money and the other side has a better idea.”
The Consumer Federation of America and North American Securities Administrators Association (NASAA) have both been strongly urging Congress to support the House version of the legislation.
Barbara Roper, of the Consumer Federation, said the Senate version would require Congress also to grant the SEC authority to pursue additional rulemaking after the study.
Supporters of a stronger fiduciary duty pushed the Senate to vote on an amendment from Democratic Sens. Daniel Akaka (Hawaii), Robert Menendez (N.J.) and Dick Durbin (Ill.) that would have replaced the study legislation with the House language.
The amendment never came up for a vote. Democratic and Republican senators pushed other amendments seeking to change the fiduciary duty section of the bill, but they too failed to come up for a vote.