Behind-the-scenes battle raging in Congress over fiduciary amendment

As the Senate this week wades through scores of amendments to legislation on financial regulatory reform, lobbying for and against applying a fiduciary standard to broker-dealers has reached a fever pitch.

Most of the activity is centering on an amendment offered by Sens. Robert Menendez, D-N.J., and Daniel Akaka, D-Hawaii, that would require broker dealers to act in the best interests of their retail clients and disclose conflicts of interest — the same rule investment advisers must follow. The provision would give the Securities and Exchange Commission the latitude to apply the standard to institutional investors as well.

The amendment, which differs only slightly from a provision in the House bill, would replace language in the Senate bill calling for a study of the issue. Observers expect a vote on Menendez-Akaka as early as May 12. Senate Majority Leader Harry Reid, D-Nev., has said he wants to finish the bill this week.

That timetable, which remains uncertain, has generated a flurry of letters and visits to Capitol Hill by the Financial Planning Coalition, the Consumer Federation of America, the North American Securities Administrators Association Inc. and AARP.

“This is a once-in-a-decade opportunity to reform our financial system,” Robert Glovsky, chairman of the Certified Financial Planner Board of Standards Inc., said in a May 11 conference call with reporters. “We’re cautiously optimistic. The time is now. We don’t need to study this anymore.”

Mr. Glovsky and his colleagues are pitching the fiduciary standard as one of the most straightforward ways to address the fears of consumers who depend on the stock market for financial needs such as retirement savings.

“It protects investors, particularly the elderly,” Mr. Glovsky said.

It’s unclear how much legislative support there is for fiduciary standards, however. Several amendments have been filed, including one by Sens. Arlen Specter, D-Pa., and Ted Kaufman, D-Del., that would create criminal penalties for violations of the standards.

Sen. Christopher Dodd, D-Conn., and chairman of the Senate Banking Committee, took stronger fiduciary language out of the Senate bill. But on the Republican side, Sen. Susan Collins, D-Maine, has expressed strong interest in the issue.

“There’s a lot of vote counting going on,” said William Baldwin, chairman of the National Association of Personal Financial Advisors.

Advocates for the fiduciary standards are battling an equally strong effort by brokers and insurers opposed to imposing the requirement on brokers. They claim that such a standard would limit their ability to charge commissions and offer proprietary products.

Andrew DeSouza, a spokesman for the Securities Industry and Financial Markets Association, declined to comment on the Menendez-Akaka amendment.

Referring to fiduciary standards generally in a May 4 e-mail, Mr. DeSouza said: “While we support a fiduciary duty for brokers and advisers when providing personalized investment advice to retail investors, we have serious concerns with such a standard being automatically extended to brokers when they are not providing personalized advice but merely acting as a market maker or counterparty to sophisticated institutional investors.”