U.S. Congress has responded to the recent financial crisis with timely, comprehensive reform measures aimed at protecting investor rights. On July 15, 2010, it approved the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final version of the Act, as passed by both the House and the Senate, includes provisions requiring that:
1. the U.S. SEC conduct a study to determine whether brokers who provide investment advice should be held to the same fiduciary standard as investment advisors,
2. the SEC conduct a study and submit a report of findings about financial literacy among investors within 2 years of the enactment of the Act,
3. the U.S. Comptroller General conduct a study to identify and examine potential conflicts of interest within investment industry firms, and make recommendations to protect investors in light of such comments, and
4. a Bureau of Consumer Financial Protection, an SEC Investment Advisory Committee, and an SEC Office of the Investor Advocate be created.
The new law gives the SEC authority to impose a “fiduciary” duty on brokers. That will mean that brokers must provide advice that is in their clients’ best interests. Currently, brokers are only required to recommend investments that are “suitable”, but not necessarily in the best interests of their clients.
SEC Chair Mary Schapiro has publicly supported imposing a fiduciary duty on brokers, which is consistent with the SEC’s current focus on strengthening investor protection.
FAIR Canada calls on Canadian securities regulators to match the SEC and regulators in other leading jurisdictions in making investor protection a top priority and requiring advisors to act in the best interests of their clients.