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The SEC’s Efforts Regarding Imposing A Universal Fiduciary Duty Standard Is Suspended Pending Implementation of Dodd-Frank Mandates

Approximately two (2) years ago, after the passing of the Dodd-Frank Wall Street Reform and the Consumer Protection Act of 2010 (“Dodd-Frank”), the Securities and Exchange Commission (“SEC”) submitted a report to Congress regarding the issuance of an SEC regulation that would apply a universal fiduciary duty standard to all financial service professionals who provide investment advice, including investment advisers and brokers. Currently, the regulatory standards under the Investment Advisor Act of 1940 impose different standards of investor protection upon traditional stockbrokers and registered investment advisors (“RIAs”). RIAs are held to a strict “fiduciary” duty standard, which requires advisors to place the interests of the client first and make recommendations regardless of the amount of compensation that he or she may receive as a result of their recommendation. Traditional stockbrokers, on the other hand, are held to a less stringent “suitability” standard that merely requires stockbrokers to recommend investment products that he or she deems suitable and consistent with the interests of the particular client at the time of purchase. In an effort to impose a universal fiduciary duty standard on financial services professionals, in January 2011, the SEC recommended to Congress that “anyone providing personalized retail investment advice should operate under a more stringent fiduciary standard”. See SEC Report here. These efforts by the SEC, however, are taking a back seat to implementing recently passed Dodd-Frank mandates. Although the enactment of Dodd-Frank evidenced legislative strides by Congress towards a heightened level of investor protection, its passing seems to be creating a road block for the SEC in passing a universal fiduciary duty standard regulation. SEC Chairman, Mary Schapiro, still asserts that the universal fiduciary duty standard is a top priority, it will none-the-less be taking a back seat to numerous other Dodd-Frank directives. See Investment News Article here. Reportedly, once these other Dodd-Frank mandates are fulfilled, the SEC will conduct cost-benefit and data analyses, as requested by several congressional members. The results of these analyses will then be used to amend the proposed rules the SEC ultimately presents to Congress. These efforts will could take several years. Lax & Neville LLP effectively represents investors, on a regional and national level, that may have suffered losses as a result of their registered investment advisors or broker dealer’s breaches of fiduciary duties, unsuitable investments and/or disregard for their investment objectives. Please contact our team of securities fraud attorneys for a consultation at (212) 696-1999.