The American College Expresses Concern To Congress On Oversight Proposal

Sep 13, 2011, 12:22 ET from The American College

Lower and Middle Income Investors Would be Adversely Impacted by a Fiduciary Standard for Broker-Dealers.

BRYN MAWR, Pa., Sept. 13, 2011 /PRNewswire-USNewswire/ -- The American College, the nation's leading educator of financial services professionals submitted written testimony today to the House Financial Services Committee's Subcommittee on Capital Markets and Government Sponsored Enterprises on new proposals governing broker-dealers and investment advisors.

"We are concerned that proposals from the Securities and Exchange Commission (SEC) to extend a fiduciary standard of care to broker-dealers will backfire and ultimately harm the consumer who has already suffered due to market volatility," said Larry Barton, Ph.D., CAP®, President and CEO of The American College.  "While well intentioned, the practical result of the change could be to limit the choices smaller investors have, resulting in higher costs and restricted access to valuable products and services."  

The College, a non-profit educational institution devoted to the study of financial services, expressed its concerns that an insufficient analysis has been done on the costs associated with expanding the fiduciary standard to broker dealers and the subsequent impact on delivering financial products to clients. The SEC staff study failed to determine how this approach will impact investors.

A typical financial plan, written by a fee-only planner now exceeds $2,500. "How many families can afford to write an after-tax check for $2,500 just for a plan?  And that's before any annuity, insurance or mutual fund is purchased," notes Barton.

The Department of Labor (DOL) is pursuing changes as well that could significantly impact consumer access to advice for IRA investments.

Barton continued:  "The SEC and the DOL must have persuasive answers to two key questions before they act.  First they need to know what consumer harm is being done under the current standards of care that will be ameliorated by broader application of a fiduciary duty; and second they need to understand what will the ultimate cost will be to consumers in terms of expense, product limitations, or reduced access to advice."

In the letter submitted to the House Subcommittee The College expressed the following concern:  "Our fear is that the SEC's suggested standard-of-care adjustments and the related compliance complexity and costs will drive broker-dealers to target higher-income markets, focusing on clients who are the most economically viable under the new model to the exclusion of lower- and middle-income investors. The SEC should be responsible for demonstrating convincingly why this will not be the case prior to taking any action to broaden applicability of the fiduciary standard."

The College suggests that unless and until the SEC can clearly demonstrate what harm is being done under the current broker-dealer approach and fully articulate the costs of abandoning an option consumers clearly value, the fiduciary standard should not be expanded. A more productive reform, according to The College, would be to focus on the frequency and rigor of investment advisor examinations, an area of Subcommittee focus for today's hearings.  More closely harmonizing enforcement between broker-dealers and investment advisors could significantly heighten consumer protections.

The American College is the nation's largest non-profit educational institution devoted to financial services.  Holding the highest level of academic accreditation, The College has served as a valued business partner to banks, brokerage firms, insurance companies and others for over 84 years.  The American College's faculty represents some of the financial services industry's foremost thought leaders.  For more information, visit

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SOURCE The American College