Does the current system of legalized bribery through campaign contributions matter?
Consider the case of a provision in the financial products regulation bill that would impose on stockbrokers the same sort of fiduciary duty lawyers have: to act in the interests of their clients when that conflicts with their own interests. It’s not a hard question, it seems to me, though I’d be willing to settle for a system where each brokerage house had to choose whether to be subject to such a standard or not, and disclose its choice to its clients.
The provision was in the original Obama Administration proposal and in Sen. Dodd’s version of the bill, but Tim Johnson of South Dakota wants to replace it with a “study,” and may get his way.
Campaign contributions aside, a fight over the fiduciary standard is a huge political winner for the Democrats. This is exactly the kind of issue we want to take into November. Go ahead, Goopers: explain why it’s “big government” and “the nanny state” and “socialism” to ask brokers not to cheat their clients. Good luck with that.
I don't think anyone disputes that brokers should have fiduciary duties to their clients. indeed, brokers already owe such duties.
As Justice Felix Frankfurter explained, however:
[T]o say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?
It's not at all clear to me that it makes sense for the same set of fiduciary obligations to be imposed on (1) brokers with discretionary trading authority over their client's account, (2) investment advisers who get paid for providing investment advice, (3) brokers who provide tailored investment advice without separate charge incidentally to their main function of executing trades ordered by the client, (4) brokers that provide generic investment research to all clients without separate charge, and (5) brokers that simply execute trades without providing investment research or advice. The higher one goes on the last list the more likely it is that the investor will place his trust and confidence in the advice being given and the more severe the broker's conflict of interest becomes. Why shouldn't the scope of their duties therefore vary, as well? After all, free advice is worth what you pay for it.
It may be the case that Tim Johnson wants to simply kill the idea. But that doesn't justify rushing a one size fits all rule through Congress.