New York partner Marc Powers, head of Baker Hostetler's national Securities Litigation and Regulatory Enforcement practice team, was quoted in the September 1, 2009, BoardIQ article, "Proposed Fiduciary Standard Could Alter How Funds Are Sold."
A new fiduciary standard for broker-dealers proposed by the Treasury Department could impact the way mutual funds are sold. The proposal, included in the Investor Protection Act of 2009, would grant the SEC broader investor protection authority and broader power to regulate broker-dealers, according to the article.
Since the 1990s, there has been a rise in broker-dealers selling programs in which they provide investment advice and receive an asset-based fee, bringing with it critics pointing to conflicts of interest, as the entity selling the security is also the one providing advice. As these broker-dealers increasingly provide investment advice, they work outside the regulatory framework for investment advisors, according to the article. However, broker-dealers say they have no fiduciary duty to customers, absent special circumstances.
According to Powers, the creation of a fiduciary duty for broker-dealers and allowing the SEC to promulgate rules to implement that duty makes a lot of sense. Customers of these broker-dealers already believe that they are owed a fiduciary duty, so it does make sense to bring the reality in line with their expectations, he said. Having said that, Powers said some of his firm's clients, such as insurance company clients, are terrified that such a standard might not allow them to conduct business, either through disclosure of possible conflicts or modification of their business practices. "From a customer point of view, it is something that makes a lot of sense and will make it easier for her to proceed successfully against her broker if he's engaged in wrongdoing whether it's in the arbitration forum or court," Powers said in a written statement.