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Robert W Pearce
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Mr. Pearce has tried, arbitrated and mediated numerous disputes involving complex securities, commodities, administrative, contract, commercial, business tort and employment law issues for over 30 years. He has represented hundreds of clients in Federal and state courts (trial and appellate) as... More
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The Law Offices of Robert Wayne Pearce, P.A.
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The Investor's Rights Law Blog
    Dec 6, 2012 11:17 AM

    The SEC should make stockbrokers abide by the 1940 Investment Advisers Act's fiduciary duty rules. Currently, broker-dealers have to abide by the "suitability" standard, which is considered a less strict standard of care. For example, under the suitability standard, brokers don't have to reveal the majority of conflicts of interest to a client to get out of any obligation to control investment expenses.

    Last year, the SEC recommended that its staff engage in rulemaking to create a uniform fiduciary standard. The finding was a result of a study mandated by the 2010 Dodd-Wall Street Reform and Consumer Protection Act. After the study was released, the brokerage industry started advocating for a completely new standard. Last summer, the Securities Industry and Financial Markets Association also recommended that the Commission set up a framework that is separate and distinct from the existing statutory standard.

    Several industry and consumer groups have written a letter to the Securities and Exchange Commission asking it to put into effect a uniform fiduciary standard for both investment advisers and broker-dealers. The groups are AARP, National Association of Personal Financial Advisors, Fund Democracy, Certified Financial Planner Board of Standards, Inc., Consumer Federation of America, Financial Planning Association, and the Investment Adviser Association. They want the SEC to extend the duty as it exists under the 1940 Investment Advisers Act to brokerage industry members and not just investment advisers.

    SIFMA wants the SEC to create "detail and structure" that would let broker-dealers apply the standard according to their own business models. The securities industry trade group also recommended that key principles be tackled, including the three main principals of a uniform standard, the definition of "personalized investment advice," clear specification regarding obligations, preservation of principal transactions, and the setup of distinct guidance on disclosure.

    In their letter to the SEC, the groups said that although they were in agreement with many components of the framework that SIFMA is recommending, there are others that they strongly oppose. For example, they are concerned that the proposed framework fails to meet Dodd-Frank's requirement for brokerage firms and investment advisers to have the same standard and that it be "no less stringent" than any standard that is already in place. They also didn't like the recommendation that the Commission give clear guidance about disclosure for the new fiduciary framework.

    Financial Planning Association, Certified Financial Planner Board of Standards, and the National Association of Personal Financial Advisors-all adviser groups-don't want there to be an advisor SRO, which SEC staff had recommended in another Dodd-Frank mandated study.

    The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website,, post a comment, call (800) 732-2889, or email Mr. Pearce at for answers to any of your questions about this blog post and/or any related matter.

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