Hopes dashed: Collins amendment extends fiduciary standard to BDs, but excludes variable annuity sellers

Senator Susan Collins, Republican of Maine, late Thursday introduced an amendment to the financial reform legislation being debated on the Senate floor that would extend a fiduciary standard to broker-dealers, but excludes people selling variable annuities.

The North American Securities Administrators Association and the Consumer Federation of American condemned the amendment because of the exclusion.

“This amendment removes the fiduciary duty precisely where it is needed most – where the conflicts of interest are greatest, the investors are least sophisticated, and the sales practices are most abusive. It paints a target on the backs of senior Americans who are most likely to be targeted with abusive variable annuity sales practices,” said Barbara Roper, director of investor protection, Consumer Federation of America.

The amendment, which can be found partway down the page, is here.

The amendment reads “all brokers, dealers, and investment advisers, in providing investment advice to retail customers, shall be to act in the best interest of the customer, without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice.”

Free pass to variable annuities

But then the amendment goes on to say the standard “shall not apply with respect to any limited representative-investment company and variable contracts products, or for any other broker or dealer, as defined by the Commission, who sells only proprietary or other limited range of products.”
Collins press office did not immediately respond to a request for comment.

An annuity contract is created when an individual gives a life insurance company money which may grow on a tax-deferred basis and then can be distributed back to the owner in various ways ways, according to Wikipedia.

Skip Schweiss, president of TD Ameritrade Trust Co. did not have a favorable first impression of the amendment. Schweiss took over TD’s regulatory advocacy on behalf of RIAs when Brian Stimpfl left that position last month. See: Why Brian Stimpfl left TD Ameritrade and where he is headed

“I’m a bit confused by the Collins amendment,” Schweiss says. “In one place, it applies an 'in the interest of the customer’ standard, in another, 'in the best interest of the customer’ standard. And it excludes advice on mutual funds and insurance products from this standard. I’m not at all sure this amendment would help clarify the standard of care for investors.”

The amendment took the investment advisory advocates, who have been lobbying hard for the financial reform legislation to extend the fiduciary standard to broker-dealers, by surprise.

Sharp questioning of Goldman Sachs executives

Collins’ sharp questioning of Goldman Sachs executives had led them to believe that she might introduce an amendment that extended the fiduciary standard more broadly. Collins’ office did not immediately return calls for comment. The National Association of Insurance and Financial Advisors also did not immediately return a call for comment.

The insurance industry has been lobbying fiercely on Capitol Hill, as NASSA noted in its press release. NASSA and the Consumer Federation are supporting a different amendment, known as the Akaka / Menendez / Durbin amendment, which would extend the standard found in the Investment Advisers Act, which advisors currently operate under, to the broker-dealers.

It’s not clear when or whether any of the amendments will be voted on.