Advocates of a universal fiduciary standard of care for all advisers and brokers are hoping that the recent insider trading probe will help their cause.
On Nov 20, The Wall Street Journal reported that the Securities and Exchange Commission, the FBI and the New York attorney general's office
are conducting criminal and civil probes into possible insider trading at a number of companies. Specifically, investigators are looking at whether traders at various financial services firms received non-public information from expert networks and third-party-research firms.
Last Monday, FBI agents raided the Connecticut offices of hedge funds Diamondback Capital Management LLC and Level Global Investors LP as part of the investigation. Wellington Management Co., Janus Capital Group Inc. and hedge fund SAC Capital Advisors LP have received subpoenas connected to the investigation.
(Read more here.)
Don Chu, a consultant with Primary Global Research LLC, was arrested Nov. 24 on insider trading charges.
Although the investigation continues, experts believe that it will raise investor awareness around the need for increased regulation of Wall Street, including the need for a universal fiduciary standard of care for all advisers.
On Dec. 7, the Committee for the Fiduciary Standard is meeting with the Securities and Exchange Commission about the fiduciary issue, and members of the group hope to frame the importance of the issue in light of recent events connected with the reported insider trading probe.
“Hopefully, this will keep the pressure on the SEC and Congress to keep focus on the fiduciary standard of care,” said Harold Evensky, president and principal of Evensky & Katz LLC, who is on the steering group for the committee. “I think this will remind everyone in the regulatory and legislative arms that the only ultimate protection the public is going to have is by making those who are providing the advice personally responsible.”
As mandated by Dodd-Frank, the SEC is conducting a six-month study for Congress about the differences in oversight of investment advisers and broker-dealers, and whether regulatory gaps exist. The study is due to be presented to Congress in January.
The agenda for the Dec. 7 meeting with the SEC hasn't been finalized, but at the very least, members of the Committee for the Fiduciary Standard hope to mention how the probe highlights the need for a fiduciary standard, said Knut A. Rostad, chairman of the committee, and a regulatory and compliance officer at Rembert Pendleton Jackson.
“This should serve as a reminder of the importance of the fiduciary standard and putting clients' interests first,” he said.
Members of the CFP Board also agree.
“The case for a fiduciary standard of care is certainly helped by this latest incident,” wrote Marilyn Mohrman-Gillis, managing director of public policy and communications at the CFP Board, in an e-mail to InvestmentNews. “We think this underscores the need for the type of accountability that will be achieved if the SEC utilizes the authority granted to it by Congress to require broker-dealers who provide retail financial advice to put their clients' best interest first.”
