Securities Litigation

On November 22, 2013, the SEC's Investor Advisory Committee voted to encourage the U.S. Securities and Exchange Commission to adopt a fiduciary duty for broker-dealers giving investment advice. The recommendation came from the Investor as Purchaser Subcommittee, and proposes either that the SEC conduct rulemaking under the Investment Advisers Act to narrow the broker-dealer exclusion from the Investment Advisers Act or that the SEC create a new rule under § 913 of the Dodd-Frank Act. In either case, the Committee recommended that the U.S. Securities and Exchange Commission create a rule that requires that brokers giving investment advice act in the best interest of their customers. Historically, brokers have been regulated through the Securities Exchange Act of 1934, and investment advisers have been regulated under the Investment Advisers Act of 1940. While investment advisors have long been subject to a fiduciary obligation pursuant to the Investment Advisers Act, brokers are subject to a different duty - the central obligation being that brokers have a "reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer." See FINRA Rule 2111. In the wake of the Great Recession, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, requiring that the SEC study the obligations of broker-dealers as compared and contrasted with the obligations of investment advisers. The resulting study recommended that the Securities and Exchange Commission "engage in rulemaking specifying a uniform fiduciary standard of conduct that is no less stringent than currently applied to investment advisers under Advisers Act Sections 206(1) and (2) that would apply to broker-dealers and investment advisers when they provide personalized investment advice about securities to retail customers." The SEC has not yet done so, and earlier this year, their Chairwoman Mary Jo White stated that the SEC had a number of other mandatory "front burner" issues it would address first. The Investor Advisory Committee's recommendation is expected to accelerate the SEC's consideration of a uniform standard, but there is still no definitive timeline for the SEC doing so. For more information on securities litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.