In the securities industry, broker-dealers play an important and vital role. If the current broker-dealer regulatory environment is not daunting enough already, it is about to get more complicated and costly, from a revenue and liability perspective. The Department of Labor (DOL) appears poised to adopt a rule early next year holding broker-dealers to a fiduciary standard of care when providing investment advice in connection with Employee Retirement Income Security Act (ERISA) plans, and significantly more important from an industry revenue perspective, IRA's. Presently, broker-dealers are not generally considered fiduciaries when they provide investment advice and related services, other than when thev have investment discretion over client accounts.' Although the courts' characteriztion of the broker-dealer duty when providing investment advice is hardly uniform," it is often analyzed in terms of whether the recommendation was suitable, which is narrower and less strict than the best interest standard applying to fiduciaries, such as ERISA plan administrators and investment advisors. Thus, all things being equal, if the DOL's rule is enacted, aggrieved investors will have an easier time suing broker-dealers, and the DOL will have enforcement and oversight powers relative to the industry, which it did not previously possess...
Originally published in the Rhode Island Bar Journal -March/April 2016.
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