Though the Dodd-Frank Act was intended to protect taxpayers and consumers, the likelihood that financial advisers will legally have to put client interests before others is decreasing as Wall Street continues to fight investor-protection measures.
Rep. Barney Frank (D-Mass.) and former SEC chairman Mary Schapiro, both of whom are considered to be major advocates for investor protection, have left Washington. The fiduciary duty proposal for brokers, however, remains, after it was pushed aside by Schapiro late last year, Forbes reports.
The proposal would require brokers to put their clients’ interests first, making them liable for any harm to the client. At present, a “suitability” standard in the proposal would require a client who has been wronged to undergo binding arbitration controlled by FINRA. Before President Obama can address the proposal, he must negotiate three possible Senate confirmations and resolve the looming debt ceiling debacle.
“Despite the historic political alignment and the financial crisis of four years ago, and despite the gallant efforts of many dedicated regulators and fiduciary advocates, the fiduciary standard is weaker today within federal regulatory rule-making and the public square, and fiduciary skeptics and opponents are stronger,” Knut Rostad, the head of the Institute for the Fiduciary Standard, said, according to Forbes. “The fiduciary standard is weaker because the repeated dubious claims and inaccurate statements took hold in many quarters. While massive lobbying from insurance companies and broker-dealers took its toll, that’s not the whole story.”
Wall Street and insurance companies lobbied furiously to squash the toughest provisions of the fiduciary proposal, and opponents called for a tough cost-benefit analysis of the rule. The measure never received support from lawmakers who received campaign donations from Wall Street, including Republicans on key committees.
Rostad also said that SIFMA publicly stated that it backed the proposal while advocating for more lenient standards in letters to the SEC, Forbes reports.