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PIABA Bar Journal

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For some time, there has been a debate over what the appropriate standards of care are and should be for both broker-dealers and investment advisers. The standards vary based on where the investment professional is, where the customer is, what types of services are being offered and what responsibilities are assumed. Across the country, there is a complete lack of uniformity. Congress considered this when drafting the Dodd-Frank Wall Street Reform and Consumer Protection Act. Accordingly, pursuant to Dodd-Frank, Congress required the SEC (the “Commission”) to conduct a study to examine the current standards of care for both brokers and investment advisers and determine if there were any gaps in the current system. On July 27, 2010, the Commission sought public comment to evaluate “the effectiveness of existing legal or regulatory standards of care for brokers, dealers, investment advisers, and persons associated with them when providing personalized investment advice and recommendations about securities to retail investors; and whether there are gaps, shortcomings, or overlaps in legal or regulatory standards in the protection of retail customers relating to the standards of care for these intermediaries.” In response, the Commission received over 3,000 individual comments and over 500 form comments. The Commission also met with a number of groups, including PIABA.

The Commission issued its report, the “Study on Investment Advisers and Broker-Dealers” (the “Study”), to Congress on January 21, 2011. The Study examined fourteen different items, as directed by Dodd-Frank. The final product was 208 pages long. It examined the current landscape of regulation of both broker-dealers and investment advisers; it looked at the perceptions of investors; and made recommendations. The Study recommended enactment of a uniform fiduciary standard that would apply to both broker-dealers and investment advisers when providing personalized investment advice about securities to a retail customer. The intricacies and the details of this recommendation will be discussed in further detail below.

What follows is a summary of the Study, beginning with the substantive section of the Study, section II. To the extent practical, the headings below following the headings included within the Study. The recommendations referenced and the opinions discussed are those included within the Study, and are not necessarily shared by the contributors to this article.


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Reprinted with the permission of Public Investors Arbitration Bar Association (PIABA). Christine Lazaro, A Summary of the SEC Study on Investment Advisors and Broker-Dealers, PIABA B.J., Vol 18, No. 1 (2011).



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