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Financial firms' roles toughen legislative task

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At its simplest, a broker-dealer helps an investor who has decided to buy shares in a company's stock locate shares to purchase.

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At its more complex, a broker-dealer might, for example, structure a specialized product that would allow an investor to bet on the direction of interest rates or whether a company will go bankrupt.

The distinction holds true both for Main Street investors, who might be setting money aside for retirement, and for sophisticated financial entities such as pension or hedge funds.

Often, the line between broker-dealer and investment adviser can blur -- especially when dealing with more complex financial products or strategies. Studies published by the Securities and Exchange Commission show that many investors do not realize the difference.

On Thursday, SEC Chairman Mary Schapiro called for broker-dealers and investment advisers to meet the same standards.

"I believe that broker-dealers and investment advisers providing the same services, especially to retail investors, should meet that same high fiduciary standard," she said in a speech. "This is an issue that I hope will be addressed in regulatory reform legislation and one that is fully consonant with the principle of fairness that helped guide the development of the securities laws."

The regulatory overhaul bill that has already passed the House would require broker-dealers who serve the public to meet the higher fiduciary standard. But after originally including a similar provision, the Senate legislation no longer does after lobbying by the financial industry.

Democratic Sens. Arlen Specter (Pa.) and Ted Kaufman (Del.) are trying to amend the Senate bill to restore the broker-dealer requirement.

"Conflicts of interest played a significant role in the 2008 financial crisis," Specter said. "This is a common-sense amendment which seeks to close a gaping loophole in federal law where brokers and dealers can avoid putting their clients' interest first."

Elisse B. Walter, an SEC commissioner, rejected the view of broker-dealers that a fiduciary standard would curb what they can do.

"I do not think imposing a fiduciary duty across the board requires a broker-dealer to provide a continuing stream of advice. The question is: What services are you performing?" she said.


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