U.S. Lawmakers Require SEC Study of Wall Street Brokers' Fiduciary Duty
Lawmakers resolved a sticking point in financial-regulation talks by giving the U.S. Securities and Exchange Commission power to make stock brokers more accountable to investors only after the agency studies the issue.
A House-Senate panel working to merge two versions of the rules overhaul into a single bill agreed to let the SEC impose a fiduciary duty on brokers once the regulator completes a six- month review. House lawmakers had earlier proposed implementing stiffer rules without a study period, prompting opposition from senators led by Tim Johnson, a South Dakota Democrat.
Consumer advocates have said the fiduciary obligation is needed because investors can be misled into buying products they don’t understand and are often confused by the titles used by financial advisers. Wall Street banks and insurance companies have lobbied against the change, saying individuals selling securities shouldn’t be regulated the same way as professionals who invest money for clients.
A fiduciary duty would require brokers who offer clients investment advice to disclose all conflicts of interest and sell stocks and bonds that are in customers’ best interests. Brokers now only have to ensure a product is suitable before marketing it to a customer.
House lawmakers also approved an amendment offered by Senator Tom Harkin, an Iowa Democrat, to bar the SEC from regulating equity-indexed annuities. The decision means state insurance regulators will continue overseeing the products, typically sold to retirees, that link returns to equity markets.
Companies selling the annuities say they are more like insurance than securities because investors get a minimum guaranteed return. The SEC tried to regulate them in 2008, saying its oversight would help ensure that firms disclose to investors all fees and penalties for canceling contracts early.