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Investor Groups Call for End to Broker-Dealer Exclusion

In a February 2 letter to the Senate Banking Committee, AARP, the Consumer Federation of America, Fund Democracy, and NASAA have once again called for a repeal of the broker-dealer exclusion in the definition of investment adviser in the Investment Advisers Act. The "Restoring American Financial Stability Act of 2009," proposed by Senator Dodd late last year contains a provision that, if enacted, would eliminate the broker-dealer exception from the definition of “investment adviser” in the Investment Advisers Act, and subject broker-dealers and their dealings with their customers to the Investment Advisers Act.  Earlier, in a January 7 letter, CFA, Fund Democracy, NASAA, and others expressed similar support for the provision, and urged Congress to approve the entire bill.

This second letter, dated February 2, 2010, is in response to what the letter calls "attack[s] by members of the broker-dealer and insurance industries whose questionable sales practices would be more difficult to maintain under the fiduciary duty and disclosure obligations imposed under the Investment Advisers Act."  The letter counter the objections the broker-dealer and insurance industry has to being subjected to the fiduciary duty of the Advisers Act with descriptions of the abusive practices that come to light in the insurance marketplace, particularly with regard to variable annuity products sold to seniors.

The group maintains that holding insurance agents and brokers to a fiduciary duty when they provide investment advice in association with the sale of variable annuities would provide additional investor protection tools, and the burden of registering insurance agents and broker-dealers as investment advisers would be minimal.

The full text of the the February 2 AARP, Consumer Federation of America, Fund Democracy, and NASAA letter is available at:

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