Commissioner Aguilar Speaks on Fiduciary Standard

April 29, 2010

SEC Commissioner Luis Aguilar spoke at the Investment Adviser Association Annual Conference in Chicago, Illinois on regulatory reform, including whether broker-dealers should be held to a fiduciary standard.

He state that he is supportive of regulatory reform legislation that would strengthen the investor protection regime that currently exists and that results in enhanced protections and flexible authority to regulate an unforeseeable future.  In short, he advocated Congress should mandate that all providers of investment advice should be fiduciaries.

He reviewed the history of the Advisers Act and the 1940 Act.  He stated that the legislative history stressed the need to improve the professionalism of the industry, both by eliminating tipsters and other scam artists and by emphasizing the importance of unbiased advice, which spokespersons for investment counsel saw as distinguishing their profession from investment bankers and brokers. The general objective "was to protect the public and investors against malpractices by persons paid for advising others about securities."  He noted that the Advisers Act required advice-givers, as fiduciaries, to bear the burden of providing disinterested advice and being able to prove it.

Commissioner Aguilar stated that Congress needs to restore the clear and strong rules that protect investors and, more than ever, we need to ensure that investment advice is disinterested.  He quoted the Director of the Division of Enforcement, Robert Khuzami, who recently said: "The product was new and complex but the deception and conflicts are old and simple."

He next spoke about the fiduciary duty that underlies the investment adviser regulatory framework to broker-dealers who provide investment advice.  In his view, this is the ultimate investor protection issue because the harm to investors is real if broker-dealers giving advice are not held to the fiduciary standard and fail to put their client's interests before their own.  He believes that the fiduciary standard has served advisory clients well for many years and it should be the governing standard whenever investment advice is provided.

Click to access the speech.


Investment Advisers, Speeches & Testimony