FINRA Chairman Wants Fiduciary Standard for Brokers
FINRA’s Chairman and CEO, Rick Ketchum, called for a fiduciary standard to be applied to broker-dealers that provide investment advice, during testimony before the House Committee on Financial Services. Mr. Ketchum’s recommendation departs from the current suitability standard applicable to broker-dealers. The application of a fiduciary standard to brokers is consistent with legislation recently proposed by Congressman Kanjorski. Mr. Ketchum also called for an independent regulatory organization for investment advisers, although he fell short of nominating FINRA for the job.
OUR TAKE: Mr. Ketchum has dispensed with any vestige of FINRA as a voluntary, self-regulated membership organization, rather than a government regulator. In the (bad) old days, no self-respecting FINRA official would advocate a fiduciary standard for brokers. In our view, the fight over the applicable standard is a red herring. FINRA’s expansive view of the suitability standard, along with its broad discretion, already gives it sufficient authority to regulate bad advice by brokers.