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Broker-Dealer/Investment Adviser Harmonization

Senator Dodd's recent financial regulatory reform bill, the Restoring American Financial Stability Act of 2010, passes the buck of "harmonizing" the regulatory regimes for broker dealers and investment advisers to the SEC.  Rather than proposing reforms imposing the same standard of care on broker dealers as is currently imposed on investment advisers, the bill calls for the SEC to conduct a study of the issue and provide recommendations.  According to section 913(f) of the bill:

If the study . . . identifies any gaps or overlap in the legal or regulatory standards in the protection of retail customers relating to the standards of care for brokers, dealers, investment advisers, persons associated with brokers or dealers, and persons associated with investment advisers for providing personalized investment advice about securities to such retail customers, the Commission, not later than 2 years after the date of enactment of this Act, shall . . . commence a rulemaking, as necessary or appropriate in the public interest and for the protection of retail customers, to address such regulatory gaps and overlap that can be addressed by rule, using its authority under the Securities Exchange Act of 1934 . . . and the Investment Advisers Act of 1940 . . . and . . . consider and take into account the findings, conclusions, and recommendations of the study required under this section.

The House version of financial regulatory reform, the Wall Street Reform and Consumer Protection Act of 2009, takes a much stronger approach, eliminating the broker-dealer exclusion from the Investment Advisers Act, and require the SEC to issues rules applying the same fiduciary standard of care to both investment advisers and broker-dealers "when providing personalized investment advice about securities."

SEC Chairman, Mary Schapiro, has been a vocal advocate of harmonizing regulation of regulation of broker-dealers and investment advisers, and investor groups have called for an end to the broker-dealer exclusion.