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Senators Introduce Amendment to Harmonize Adviser and Broker-Dealer Regulation

Early this week, Senators Menendez (D-NJ) and Akaka (D-HI) announced that they will introduce an amendment to the Senate financial regulatory reform legislation that, if enacted, would direct the SEC to adopt rules harmonizing the regulation of broker-dealers offering personalized investment advice to retail investors with that applicable to investment advisers.  That is, hold broker-dealers to the same standard of conduct required of investment advisers. 

Although the amendment language does not require the SEC to fashion its rules such that broker-dealers have a continuing duty of care or loyalty, a fiduciary duty, to the investor after providing investment advice, it would require that broker-dealers "act in the best interest of the customer without regard to the financial or other interest of the advice giver."  The amendment also would require that the SEC mandate disclosure of material conflicts of interest, which can be waived or consented to by the customer, if they so choose.  One potential weakness of the amendment is that it would not permit the SEC to write rules that extend the broker-dealers' duties to the investor to a time after the transaction is completed. 

SEC officials and others have long called on the harmonization of the regulation of broker-dealers with that of investment advisers.  It will be interesting to see if this amendment survives to any eventual final bill. 

The full text of the Mendez-Akaka amendment is available at:  http://lawprofessors.typepad.com/files/menendez-amendment.pdf