Brokerages say U.S. fiduciary rule may impact choice

Mon Nov 8, 2010 11:35am EST

* Brokerage execs say fiduciary rule may increase costs

* Potential rule could reduce client investing choice

* Executives want clear guidelines on potential rule

NEW YORK, Nov 8 (Reuters) - Brokerage executives are worried that a higher standard of care for brokers will curtail investor choice and increase the cost of financial advice.

Executives told attendees at the Securities Industry and Financial Markets Association's annual meeting on Monday that a fiduciary standard requiring anyone giving personalized financial advice to put their clients' interests first may have unintended consequences.

"Our primary concerns are providing investors with choice and being able to do it in a cost effective way," said James Allen, Chairman and Chief Executive Officer of regional brokerage firm Hilliard Lyons.

The Dodd-Frank Act directed the Securities and Exchange Commission to conduct a six-month study into whether anyone providing personalized financial advice should be brought under a uniform fiduciary standard. Currently brokers must only meet a lower "suitability" standard.

Chet Helck, Raymond James Financial's (RJF.N) Chief Operating Officer, said the practical implications of such a standard need to be spelled out.

He pointed to the example of a client who had sold his business and kept a large amount of stock in his company. Even if the client wanted to stay invested in his former company, would a financial adviser be obligated to tell him to diversify his holdings because it is safer, Helck asked.

"A very strict interpretation could not accommodate activities that a client wants," said Helck.

There is also a concern that the increased regulatory burden under a fiduciary standard will force brokers to charge more for financial advice, which may make it too expensive for some smaller investors, said Kent Christian, President of the Financial Services Group at Wells Fargo (WFC.N) Advisors.

"For clients who fit a certain profile and below, it may be difficult for the firm to continue to serve them profitably," said Christian.

(Reporting by Helen Kearney; Editing by Jackie Frank)

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