Fiduciary advocates are optimistic on Senate bill

As the debate over financial regulatory reform heats up in the Senate, the fiduciary-standard issue simmers on a back burner, though its backers haven’t abandoned hope of seeing its inclusion in a final bill.

“It is the single most important measure in terms of affecting Main Street investors,” said Texas Securities Commissioner Denise Voigt Crawford, addressing the annual public policy conference of the North American Securities Administrators Association in Washington last week. She also serves as NASAA’s president.

Efforts by NASAA and other groups to salvage the fiduciary standard in the legislation may get help from Sen. Robert Menendez, D.-N.J. An aide said that the senator is considering offering an amendment on the Senate floor that would apply the fiduciary standard to broker-dealers providing investment advice.

A provision to apply a fiduciary standard universally to brokers and investment advisers was dropped from the original draft offered by Sen. Christopher Dodd, D-Conn., because of opposition from the insurance and brokerage industries, which contend that such a standard would crimp the ability of brokers to serve clients.

Particularly, there was push-back from brokers’ groups who argued that a fiduciary standard that required anyone providing investment advice to act in the clients’ best interests would preclude them from conducting customary business, including selling propriety products.

“Carried to its extreme, the very charging of a commission for a transaction may be seen as a conflict,” according to a document circulating on Capitol Hill that was submitted by brokerage firm Edward Jones.

NASAA maintains that the fiduciary standard being considered would still allow brokers to offer non-advice services and charge commissions without running afoul of regulation.

Ms. Crawford and her allies prefer the fiduciary-standard provision contained in the House financial services reform bill, which was approved in December on a mostly party line vote, 223-202.

The Senate Banking Committee, of which Mr. Dodd is chairman, approved the bill March 23 — without Republican support — and the full chamber is expected to begin debate on it this month or early next month.

But when the bill reaches the Senate floor, he won’t be able to dismiss Republicans entirely. The Senate Democratic caucus totals 59, one short of the number required to overcome a filibuster.

Some Republicans, however, may support financial reform to avoid the wrath of voters who are angry at Wall Street. In addition, Mr. Dodd and Sen. Richard Shelby, R.-Ala., the ranking Republican on the banking committee, could still reach an agreement on a modified bill.

“That would give a leg up to the Senate,” said David Tittsworth, executive director of the Investment Adviser Association.

At an April 13 press conference, Mr. Shelby stood with Senate Republican leader Mitch McConnell, R.-Ky., as Mr. McConnell denounced the Dodd bill. Later, though, Mr. Shelby left the door open to negotiation.

“We will meet [Democrats] halfway and a get a good bill, if they want a good bill,” he told reporters.

With the Senate back from its spring recess, Mr. McConnell is trying to coalesce the 41 Senate Republicans into monolithic opposition. Democratic leaders maintain that they have patiently worked with Republicans for months and now intend to move forward with a measure that they said will prevent future financial market collapses.

“The big question is whether Sen. Dodd can find one or two Republicans to support his bill,” Mr. Tittsworth said.

Most of the political tension centers on overarching themes such as mitigating systemic risk in the financial system, addressing the too-big-to-fail problem, establishing a consumer financial protection agency and regulating derivatives.

Despite the importance of the issue to the advisory and brokerage businesses, extending the fiduciary standard isn’t likely to be decisive in the quest for 60 Senate votes. “These are not the issues that are going to make or break financial services reform legislation,” Mr. Tittsworth said.