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Fiduciaries 2 - Fiduciary Duty Hits the Street Sort Of By...

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Fiduciary Duty Hits the Street -- Sort Of By JANE J. KIM Wall Street finally has agreed to put its brokers under the tougher fiduciary standard for their dealings with customers. Now a fight looms over how tough that standard will be. As part of its regulatory overhaul, the Obama administration proposed holding brokers who give investment advice to the higher fiduciary duty -- a legal standard that would compel them to act in their clients' best interests. Currently, brokers are held to a more lenient "suitability" standard, which means they can't put clients in inappropriate investments. Many investment advisers, by contrast, have operated under the fiduciary standard for nearly 70 years. The changes could transform the brokerage industry by changing the way products are sold and marketed and even how brokers are paid. Requiring brokers to operate under the existing fiduciary standard could force them to recommend more investments that are less costly and more tax-efficient. They would have to tell clients about any potential conflicts of interest, such as when they stand to gain personally by favoring one product over another. For example, a broker who recommends a mutual fund with a higher fee -- and one he gets a bigger commission for selling -- would have to disclose that potential conflict upfront.
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  • Spring '09
  • Upton
  • U.S. Securities and Exchange Commission, Conflict of interest, fiduciary standard, North American Securities Administrators Association

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