Wednesday, July 15, 2009

The Investor Protection Act of 2009

The Treasury Department has released (as of July 10) the administration's proposed Investor Protection Act of 2009. If enacted, it will implement parts of the financial-reform proposals contained in the recent White Paper.

Under existing law, there is an important difference between investment advisers on the one hand and broker-dealers on the other. Both can be held to certain standards in terms of the fiduciary and anti-fraud obligations, but the broker-dealers get to police themselves through self-regulatory organizations, which historically they have found quite comfortable.

The Fact Sheet included in the Treasury Department’s press release announcing the Act states that in the department's view the distinctions are "no longer meaningful," that investors rely upon recommendations from BDs in the same way that they rely upon recommendations from IAs. The Act would authorize the SEC to create a unified set of standards. In the words of a "client newsflash" posted on the webpage of the Davis Polk law firm, "The inclusion of these provisions in the Act may presage greater involvement by the SEC, in addition to FINRA, in directly regulating sales practices of broker-dealers."

By the way (have I mentioned this lately?) nothing you have read or are ever going to read in this blog is to be taken by any rational or even vaguely conscious being as a piece of investment advice to any degree whatsoever.

I'm so glad we've cleared that up.

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