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Rules & Regulations

FINRA on Fiduciary Duty

June 6, 2017

by Howard Haykin


The Chairman and CEO of FINRA gave a speech at an ALI-ABA Conference, in which he addressed the (seemingly never-ending) issue of establishing consistent fiduciary standards of care for investment advisers and brokers providing investment advice. [American Law Institute – American Bar Association]


I’d like to share the prepared text of that speech. [Note: Financialish emboldened certain text for emphasis.]


I testified before the House Financial Services Committee on Tuesday, and I told the Committee that FINRA whole-heartedly embraces the Administration's goal of harmonizing the regulation of broker-dealers and investment advisers. We believe that in order to accomplish that goal, two steps are necessary. The first is establishing a consistent fiduciary standard for investment advisers and broker-dealers providing investment advice.


The Administration has proposed that the SEC write rules establishing consistent fiduciary standards of care for investment advisers and brokers providing investment advice. FINRA stands in agreement with numerous interested parties that the standard of care in both channels should be a fiduciary standard for the provision of advice.


We need to step away from the nonsense of diminishing present standards. We should start with a commitment that the standard is "business model neutral" and focus on the basic shift that each recommendation must be in the "best interest of the customer."


Harmonization of the standard of care is an important first step. However, given the number of recently revealed frauds perpetrated by investment advisers bound by the fiduciary standard, it is clear that the existence of the fiduciary standard of care alone is not a guarantee against misconduct. Compliance with that standard must be regularly and vigorously examined and enforced to ensure the protection of investors.



Now, if someone would just throw a life preserver to SEC Chair Jay Clayton to fast forward this process. The industry and the investing public needs and deserves to have the Securities and Exchange Commission fulfill its regulatory obligations by enacting fair and meaningful rules and regulations. While the Department of Labor should be commended for taking action - establishing a fiduciary standard of care pertaining to retirement accounts - that Fiduciary Rule should not be the “end all, be all.”  
And, in case you wondered: The above speech was given nearly 8 years ago, on 10/8/09, by then-FINRA Chairman and CEO Rick Ketchum.