Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, July 17, 2009

A Dream Come True? Fiduciary Standards for Broker-Dealers

Is it even remotely possible that an aftermath of the financial meltdown could be a heightened standard of conduct for broker-dealers?  Yesterday SIFMA came out in favor of a uniform "fiduciary standard" for broker-dealers and investment advisers that provide individualized investment advice that is part of the Obama administraton's financial reform package.  Currently there is not even a federal remedy for negligent brokerage advice; the only federal remedy requires proof of fraud. 

Of course, the devil is in the details.  The phrase "fiduciary standard" is an aspirational concept, but in fact there is not a great deal of caselaw that defines the concept as it applies to brokers or investment advisers.  (The fiduciary standard applicable to traditional trustees, with its prudent person standard, is inapplicable in investment settings where customers can have a range of risk tolerance and investment objectives.)  Will there really be a prohibition on self-dealing as classic fiduciary principles require? And assuming that heightened standards are adopted by statute or (more likely) SEC or FINRA rulemaking, will there be a private cause of action?  Stay tuned for future developments.

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