Due Diligence

Mercer Bullard Says Fiduciary Study Needs Reframing

Mercer Bullard, Founder and President of Fund Democracy, Associate Professor of Law at the University of Mississippi School of Law and a v0cal consumer advocate, has written a short essay on the SEC's study of investment adviser and broker/dealer regulation. The essay is called "The Fiduciary Study: A Triumph of Substance Over Form?" and it provides some much needed clarification of terms in a slippery debate that has been raging for many years, and will continue for many more to come.

Among other things, the Wall Street reform law requires the SEC to study standards of conduct for investment advisers and brokers, including the fiduciary standard. This fiduciary issue is "already serving as a kind of pre-rulemaking combat zone," Bullard writes in his paper, as the SEC has received over 1,300 letters during the first three weeks of the comment period alone. (He emphasizes that his essay is not a comment letter, but rather, a paper that will be presented at a conference in Washington on September 24.)

Bullard says section 913 of the Dodd-Frank law, which requires this SEC study of the fiduciary standard, wrongly frames that study as an investigation of specific standards of conduct, when the fiduciary standard is "inherently principles-based." He continues, "To regulate conduct through rulemaking is to remove that conduct from the truly fiduciary sphere."

Further, "There is no catalogue of conduct requirements that comprises the fiduciary duty under the Advisers Act. The fiduciary duty relfects requirements that have evolved as common law, that is, as a set of principles that are reflected in the decision of courts, not as a collection of rule-based dictates."

Read the whole essay here.

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