Hearings before the Financial Crisis Inquiry Commission (FCIC), started off with a bang on January 13, when Goldman Sachs Chairman and CEO Lloyd C. Blankfein testified that at Goldman Sachs, “…we do support the extension of a fiduciary standard to broker/dealer registered representatives who provide advice to retail investors. The fiduciary standard puts the interests of the client first. The advice-giving functions of brokers who work with investors have become similar to that of investment advisers. But, investors may not understand that the person they are getting advice from may be regulated under different rules and regulations. Retail investors should be able expect the same duty of care when they are receiving investment advice.”
The Commission heard as well from JPMorgan Chase & Co. Chairman and CEO, Jamie Dimon, Morgan Stanley Chairman John Mack, Bank of America CEO and President Brian T. Moynihan. Testimony for all participants can be seen at the FCIC Web site.
This is the first time that the head of one of the large broker/dealers has stepped up to publicly state support for the fiduciary standard—and by extension, individual investors. The extension of the fiduciary standard that applies to investment advisors, to broker/dealers who provide advice to investors, is part of the Senate’s proposed discussion draft of financial services reforms, as it stood on December 10. The House passed similar requirements on December 11, in H.R. 4173, the Wall Street Reform and Consumer Protection Act.
Blankfein said earlier in his testimony how important the advisory business is to Goldman Sachs. (Of course we understand that this is not all retail advice.) “We have been particularly focused on fee income businesses, such as advisory, commissions and asset management fees, and since our IPO more than ten years ago, we have generated half of our income from them. We continue to see the benefits of a diversified revenue stream across a global franchise centered around integrating advice, execution, financing and co-investing with best-in-class risk management to a broad range of largely institutional clients.”
Not only does Goldman’s CEO look like an investor’s champion, he gets the prize for being first to ride in on his white horse and take this greatly needed step toward restoring investors’ faith or at least good will toward those who serve them in the financial services industry.
Will other brokerage CEOs follow suit?
I contacted Morgan Stanley about this issue, and spokesman James Wiggins responded by email: “Morgan Stanley Smith Barney is working through our industry association, SIFMA, which has endorsed the idea of a uniform national fiduciary standard and is engaged with the policymakers in Washington to implement it in a way that preserves our ability to offer the full range of services that our clients want.”
JPMorgan Chase and Bank of America/Merrill Lynch have not responded to requests for interviews or comment as of press time.
Comments? Please send them to kmcbride@wealthmanagerweb.com. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.
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