U.S. House Committee Marks Up Legislation to Establish Fiduciary Standards of Care for Broker-Dealers and their Reps
Approves Several NAIFA-Supported Amendments But Threats Still Remain
Issue: Financial Services Regulatory Reform
Date: October 28, 2009
The House Financial Services Committee (Chairman Barney Frank, D-MA) today began to mark up legislation which would bring investment advisers and broker-dealers under a harmonized fiduciary standard of care. The bill, known as the Investor Protection Act of 2009 (IPA), was introduced earlier this month by Rep. Paul Kanjorski (D-PA), Chairman of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises (See October 6 GovWatch).
Impact on NAIFA Members: The IPA will have huge ramifications for NAIFA members and the way you interact with your clients. This legislation covers disclosures to investors, commission compensation, and harmonized examinations for investment advisers, broker dealers and registered representatives.
NAIFA Progress: A modified version of Chairman Kanjorski’s bill was circulated on Monday, October 26. The updated “manager’s draft” (Subcommittee Chairman Kanjorski and full Committee Chairman Barney Frank’s changes to the IPA) included some helpful improvements to the original draft—improvements which NAIFA strongly supported. We therefore submitted comments to House Financial Services Committee staff regarding the October 26 version of the IPA. Those comments can be found here.
Today, NAIFA staff was able to work with key members of the Financial Services Committee to make further improvements to the IPA. Those improvements include:
- An amendment by Rep. Dan Maffei (D-NY) clarifying that broker-dealers and their registered reps who only offer a limited suite of products will not be considered in violation of the fiduciary standard for that reason. – Adopted
- An amendment by Rep. Keith Ellison (D-MN) clarifying that the fiduciary standard of care will only apply when a registered rep or investment adviser is providing personalized investment advice "about securities." - Adopted
- An amendment by Rep. Michael Capuano (D-MA) to require the Government Accountability Office to conduct a study regarding the regulation of financial planners. – Adopted
Rep. Capuano was initially planning to offer an amendment to make “financial planning” a recognized profession subject to an additional layer of regulation and oversight from a Financial Planning Oversight Board. NAIFA, through our grassroots efforts, was able to convince Rep. Capuano that his proposed amendment would result in a major overhaul of an already heavily regulated financial services marketplace. He therefore agreed to change his amendment to ask the GAO to study the issue.
Rep. Ellison offered—but subsequently withdrew— an amendment to express concerns about language that registered reps or investment advisers must act in the “best interest” of a client "without regard to the financial interest of the broker, dealer..." Rep. Ellison offered his amendment in order to go on the record as having concerns with this language, but then withdrew it after a commitment from Chairman Frank to address this issue in the report language of the bill (the official document which clarifies the intent of legislative language). Rep. Maffei also spoke to share the concerns of Rep. Ellison. NAIFA understands from the Chairman's staff that the "without regard to the financial interest” language is not intended to define the fiduciary standard, and will continue to work with the Chairman to address this harmful language.
Next Steps: The Committee has not yet completed marking up the IPA bill but it is expected to be approved when they return to this markup on Tuesday, November 3. The bill is then expected to be taken up on the House floor, as part of a comprehensive regulatory reform package, the 3rd week of November.
Grassroots Action Needed: NAIFA has had great success in making improvements to the IPA but there is still much work to be done. Our biggest outstanding concern is the bill will keep open the door for the SEC to ban commissioned based sales. We are currently working on a House floor strategy to address this major outstanding concern.
Please join your NAIFA Government Relations Team for a webinar on the Investor Protection Act of 2009 to learn more about this issue and how you can make an impact. The webinar will be held on Thursday, October 29, 2009 from 3:00 to 3:30 pm Eastern Time. Click here to register for the webinar.
This webinar is a follow up to the October 23 webinar. Therefore, if you missed that one, you can bring yourself up to speed before Thursday’s webinar. Click here to access the October 23 webinar. (Space is limited to 1,000.) Click here to access the issue brief.
NAIFA Staff Contact: Jill Edwards, Assistant Vice President – Federal Government Relations, at jilledwards@naifa.org.
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