U.S. Securities and Exchange Commissioner Luis Aguilar, in a recent speech, called for a statutory fiduciary standard to be introduced for all providers of investment advice. Aguilar said “The events of the last two years have underscored an age old truth that financial products and technologies will continually change, but the potential for deception and conflicts endure … While the scope of service may vary between clients, the standards of loyalty and care in providing that service should not.”
Aguilar noted that the fiduciary standard guards against the inherent bias that arises when a broker-dealer is focusing on selling a product, rather than focusing only on what is best for a client. Permitting broker-dealers to provide investment advice without requiring them to act as fiduciaries is to permit a practice that leaves investors vulnerable to the same abuses described in the 1930s.
It is readily apparent from recent Commission enforcement cases – such as the cases involving auction rate securities – that all investors, including institutional investors, need the protection of the fiduciary standard.
