Representative Barney Frank's (D-MA) recent letter to SEC Chairman Mary Schapiro has financial and government officials scratching their heads.  Rep. Frank, the ranking member of the House Financial Services Committee, wrote to say that the new fiduciary standard must 'recognize and appropriately adapt to differences' between brokers and RIAs.

Advisory industry officials are somewhat perplexed as to why Rep. Frank wrote to Chairman Schapiro on 5/31 urging the SEC not to put broker-dealers under the exact same fiduciary standard that advisors are subject to under the Investment Advisers Act of 1940.  In his letter to Ms. Schapiro, Frank said that, while Section 913 of Dodd-Frank gives the SEC the authority to establish a new fiduciary standard of care for broker-dealers, “the requirement that the new standard be ‘no less stringent’ … was not intended to encourage the SEC to impose the Investment Advisers Act standard on broker-dealers, but to ensure the new standard would not be a ‘watered down’ version of the investment advisors’ fiduciary standard.”  Rep. Frank added that, if Congress intended the SEC “to simply copy” the Investment Adviser Act standard for brokers, it would have repealed the broker-dealer exemption.

The new fiduciary standard contemplated by Congress, Frank wrote, “is intended to recognize and appropriately adapt to differences between broker-dealers and registered investment advisors.”

Barbara Roper, Director of Investor Protection for the Consumer Federation of America, said in an email to AdvisorOne that she’s “not sure what Congressman Frank was trying to achieve” with his letter to Schapiro.  She noted that the SEC's study under Section 913 of Dodd-Frank “made absolutely clear that the agency has every intention of pursuing an approach that retains the ability of brokers to offer transaction-based advice compensated through commissions and to sell both proprietary products and from a limited menu of products."

Ms. Roper added, “Moreover, [the SEC] has delayed dealing with principal trading restrictions so that they can be addressed as part of the larger fiduciary rule in a way that preserves brokers’ ability to conduct such trades. There is absolutely no reason to believe the SEC is going to diverge from that path, something I’m sure Congressman Frank is aware of.”

The debate heats up.   For further details, go to:   [AdvisorOne, 6/6/11, Barney Frank to SEC .."] and  [Barney Frank's Letter dated 5/31/11]