The Fiduciary Study: A Triumph of Substance Over Form?

Abstract:     
In the months preceding the enactment of the Dodd‐Frank Wall Street Reform and Consumer Protection Act of 2010, public interest groups and financial planners lobbied Congress to impose a fiduciary duty on broker-dealers that provide investment advice. Congress deflected this issue to the Securities and Exchange Commission, however. The Act requires the Commission to conduct a six-month study of the regulation of investment advisers and broker-dealers and grants it rulemaking authority to act on the study’s findings. Although the issue of broker-dealers’ fiduciary duties has long been framed as a problem of different standards of conduct applying to advisers and broker-dealers with respect to their investment advisory activities, this essay argues that this should not be the guiding principle for the SEC’s study. Rather, the focus of the study should be the efficacy of principles‐based regulation as to broker-dealers’ investment advisory activities. Furthermore, the Commission should consider the broker-dealer fiduciary duty in the context of other traditional models of legal analysis, including: public versus private rights of action, allocation of regulatory oversight authority, comparative dispute resolution mechanisms, federalism, procedural rules, and separation of powers.

Number of Pages in PDF File: 12

Keywords: fiduciary, investment adviser, broker, broker-dealer, Investment Advisers Act, SEC, Commission, Dodd-Frank, study, fiduciary duty, common law, principles-based, rules-based

JEL Classification: K23, K22, K20, G18, G24, G28

working papers series