First, a recap: The Investment Advisors Act of 1940 states that investment advisors have a fiduciary duty to clients. Stock Brokerage firms have worked for decades attempting to escape any fiduciary duty to their clients. When they decided that, in addition to being brokerage firms, becoming investment advisors was also lucrative, what were they to do?
Simple, use their political influence at the SEC. While the SEC’s job is to protect investors, as political appointees, its Commissioners are political (the present SEC Chairman is a former activist Republican Congressman). To accommodate Wall Street, the SEC simply said Wall Street firms were exempt from the Investment Advisors Act.
Crying foul, the Financial Planning Association, those who are not stock brokers, sued the SEC – and, two months ago, they won! Stinging from the defeat, the SEC decided not to appeal. (After all, how can the SEC exempt anyone from laws written by Congress?) Wounded, Wall Street then asked for and was granted several months to decide what to do.
The Director of the SEC then personally, not waiting for SEC backing, asked Congress to look into “soft dollar” arrangements of investment advisors with securities dealers, which he said is a subject of abuse. The SEC also investigated several large investment advisors and remarked that only one was properly disclosing its fees. This is a huge shot across their bows!
So much for a vendetta against investment advisors, but how is the SEC going to now save Wall Street firms from being fiduciaries of their clients, and quickly! Well, maybe the law could be changed.
The SEC has announced a hasty open meeting to be held this Wednesday to consider the adoption of a new antifraud rule under Section 206 of the 1940 Investment Advisers Act, saying the change is “designed to provide more protection to investors.” This, of course, would mean Congress would have to amend the Act.
Warning to Investors: BEWARE OF SEC COMMISSIONERS BEARING GIFTS! In case you haven’t noticed, nothing good for investors has come out of Washington in years. Why would anyone think a final bill on investment advisors would not grant some sort of exemption to Wall Street? These folks are paying mega-bucks to lobby both parties to get what they want.
by: William S. Shepherd
William Shepherd is the founder of the law firm of Shepherd Smith and Edwards a securities law firm that represents investors seeking recovery of losses in their accounts at investment firms. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.
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