April 23, 2010 / 9:25 PM / 10 years ago

Groups push Senate for higher broker standard

NEW YORK (Reuters) - A group of regulators and consumer advocates is supporting a proposed amendment to the Senate’s financial reform bill that would require brokers to adopt a higher fiduciary standard.

State securities regulators, the Consumer Federation of America and the AARP sent a letter to Senate on Friday to get support for the amendment introduced by Hawaii Democrat Daniel Akaka and New Jersey Democrat Robert Menendez.

“This amendment would restore the single most important investor protection of all,” said Russ Iuculano, executive director for the North American Securities Administration Association.

Under the Senate bill, the Securities and Exchange Commission would conduct a study of the fiduciary standard and its impact on advisers and clients, and decide whether to adopt new regulations.

Regulators and consumer advocates say that is not enough.

The proposed amendment would require the SEC to adopt rules requiring brokers to act in the best interests of their clients when giving them investment advice. Currently, brokers must only show that their recommendations are suitable for clients.

The amendment would reflect the version of the bill passed by the House of Representatives in December. The Senate dropped the adoption of the fiduciary standard following a lobbying campaign from brokerage firms and insurance agents, said Iuculano.

Charles Johnston, head of Morgan Stanley Smith Barney,, said at a securities industry conference on Friday that he was concerned about the adoption of a single fiduciary standard if it limited customer choice.

Johnston said under the fiduciary standard that currently governs investment advisers, brokers would not be able to sell clients proprietary products or new issues of securities underwritten by the firm, or allow clients to hold a concentrated position in one company.

Iuculano contends these fears are unfounded. The House bill does not require advisers to be brought under the Investment Adviser Act and provides specific exemptions for brokers selling proprietary products, provided they inform their clients of what they are doing, said Iuculano.

The fiduciary issue has been overshadowed by other provisions of the bill, such as rules regulating derivatives, said Cristina Martinfirvida, director of economic security at the AARP. Still, she is confident it will pass.

“The public expects to see pieces of the legislation that have to do with individual investors and not just institutions,” she said.

Reporting by Helen Kearney. Editing by Robert MacMillan

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