Fiduciary Standards Could Shake Up One Fund Distribution Channel
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Wednesday, August 18, 2010

Fiduciary Standards Could Shake Up One Fund Distribution Channel

Fundsters interested in the broker-sold side of mutual fund distribution may want to take a look at this morning's Wall Street Journal. Jessica Holzer and Fawn Johnson report on the Securities and Exchange Commission's newfound power to create and hold brokers to a defined fiduciary standard of care, requiring brokers to put clients' interest first instead of merely requiring investments to be "suitable."

While brokers would still be allowed to earn commissions and restrict their fund lineups, new disclosures and guidelines could change the way brokers sell mutual funds and other investments.

The new capability comes from the recently enacted Dodd-Frank financial reform law, which gives the SEC the ability to create this new fiduciary standard for brokers. Under such a standard, brokers might have more trouble justifying (regulation-wise, or even just sales-wise to their clients) using higher commission funds, shifting the balance of power in the wirehouse distribution channel for mutual funds. (Fee-based RIAs and financial planners are already held to a fiduciary standard of care, admittedly not one codified in federal regulation or law.)

RBC's John Taft, the Consumer Federation of America's Barbara Roper, the Investment Adviser Association's David Tittsworth, and Denise Voight Crawford all weighed in for the article.

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