Clark At Large

It seems I may have been a bit hasty in my assertion that SIFMA was behind the amendment by Senator Tim Johnson (D-South Dakota) that back-burnered the fiduciary duty out of the Senate’s version of financial services reregulation. Apparently, it’s the insurance lobby that has the good Senator’s ear. To my mind, that’s both good news and bad news.

The bad news is that, despite AIG’s problems, the insurance industry emerged from the 2008 Mortgage Meltdown with far less egg on its collective face than did its Wall Street counterparts. Which means that the larger insurers undoubtedly still have considerable political capital in Washington which they have never been bashful about using when they feel threatened. As you may have heard, the insurance industry does not like this whole fiduciary thing one tiny bit.

The good news is that over the years, the insurance folks have never really seemed as, well, sophisticated as the securities guys. This rereg battle seems to be no exception. For example, here’s how Thomas Currey, president of the National Association of Insurance and Financial Advisors (NAIFA) explained his industry’s opposition to a fiduciary duty, as quoted in the Washington Post on March 7: “Most of us operate under contracts with a broker/dealer or insurance company, and you have an agreement that you’re going to look out after the interests of the company.” A fiduciary duty “puts a person with a contract like that in a really untenable situation. There is really no way you can equally serve those purposes.”

Oh, really? Is it just me, or is it hard to tell which side Mr. Currey is supporting here? I can only assume he believes this argument supports dropping an omnibus fiduciary duty for all financial advisors. But can you think of anything that argues more strongly in favor of such a duty than the fact that an agent can’t “equally serve” the company they work for and their client’s best interest?

Now, I’ve said it before and I’ll say it again: I don’t have any thing against sales people. Virtually all industries have them, and they’re essential to making our competitive economy work. And of course, some of my best friends are sales people, yadda, yadda, yadda. My problem is when salespeople want “customers” to think they are “advisors” with a duty to put their “client’s” interests first, when they have no such duty. Some people might say that’s tantamount to fraud.

Ironically, neither the House nor Senate versions of financial services reform legislation would require that a broker or insurance agent with a securities license become a “fiduciary advisor,” as long as they didn’t offer “investment advice.” So my question for the insurance industry is: “Why don’t you just have agents tell their customers; ‘We don’t work for you, we work for our insurance company,’ in no uncertain terms?” The answer, of course, is because they wouldn’t sell much. Isn’t that a pretty clear indication that there’s a problem with the way they currently do business?

End Game to the Fiduciary Issue?

By Bob Clark

Okay, so I may have been a bit overly optimistic with my assessment of the Johnson amendment (February 22, 2010 blog). But it happens so rarely these days, I have to admit, it felt kind of good. But reality has reared its head to bite me on the keister, and things aren’t looking nearly as good for the fiduciary standard this week as they were last week.

For those you who might have missed it, what with all the lollapalooza about the Olympics, the healthcare summit, and Tiger Wood’s press conference, the fiduciary duty for brokers has been dropped from financial services re-regulation. It seems that the amendment introduced two weeks ago by Sen. Tim Johnson (D-South Dakota)—which would replacing a fiduciary standard now in the legislation with a study of the practicality of such a standard—has been added to the Senate version of the reform bill. That means neither the House nor the Senate versions of financial services re-regulation contains any change in the current fiduciary status quo.

As the Obama Administration initiated the call for an omnibus fiduciary duty for all financial advisors in a white paper issued about this time last year, we might expect it to step up and champion the idea now. But with much of its political capital spent on the battle over healthcare reform, the White House may have neither the heart nor the political muscle left to take on Wall Street (or its new banking masters). With the Dodd financial services reform bill sans a broker fiduciary standard slated to be introduced in the Senate Banking Committee this week, it looks like the advocates of a comprehensive fiduciary duty are on the ropes.

Last Thursday, one of those advocates, The Committee for the Fiduciary Standard, issued a press release, calling on members of the Banking Committee to “not delete the pro-investor cornerstone of Wall Street reforms, reinstate the fiduciary provision… …and reject a provision to ‘study’ the issue.” In addition to pointing out the Johnson amendment doesn’t call for anything that hasn’t already been studied by the SEC, the teeth of the Committee’s objection comes from its joint survey with SEI Advisor Network showing brokers themselves favor adopting a fiduciary duty, 2 to 1 (53% to 27%).

I hope the Senate is listening, but I’m not nearly as optimistic about that.

As reported by Wealth Manager Editor-in-Chief Kathleen McBride in her Friday online column (wealthmanagerweb.com), a new salvo as been fired in the attack against a fiduciary duty for all financial advisors. Now that the dust has begun to clear from the wreckage of healthcare reform, Congress is once again turning its attention to the business of running the country, including the back-burnered reregulation of financial services. At what I can only assume is the behest of the Financial Services Industry (SIFMA, et al)—who have likely not been idle during this legislative hiatus—Sen. Tim Johnson (D-SD) has introduced an amendment to the Senate version of financial rereg that would replace the stated “’40s Act fiduciary duty” with a study of the “obligations of Brokers, Dealers, and Investment Advisors.” For those of you who don’t spend much time inside the Beltway, that’s Washington speak for “buried deeper than John Edwards political career.”

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