S.Amdt. 3889

SA 3889. Mr. AKAKA (for himself, Mr. Menendez, and Mr. Durbin)
submitted an amendment intended to be proposed to amendment SA 3739
proposed by Mr. Reid (for Mr. Dodd (for himself and Mrs. Lincoln)) to
the bill S. 3217, to promote the financial stability of the United
States by improving accountability and transparency in the financial
system, to end ``too big to fail'', to protect the American taxpayer by
ending bailouts, to protect consumers from abusive financial services
practices, and for other purposes; which was ordered to lie on the
table; as follows:

On page 942, strike line 10 and all that follows through
page 951, line 13, and insert the following:

SEC. 913. ESTABLISHMENT OF A FIDUCIARY DUTY FOR BROKERS,
DEALERS, AND INVESTMENT ADVISERS, AND
HARMONIZATION OF REGULATION.

(a) In General.--
(1) Securities exchange act of 1934.--Section 15 of the
Securities Exchange Act of 1934 (15 U.S.C. 78o), as amended
by this Act, is amended--
(A) by redesignating subsection (i) (relating to security-
based swap agreements), as added by section 303(f) of the
Commodity Futures Modernization Act of 2000 (Public Law 106-
554; 114 Stat. 2763A-455), as subsection (j); and
(B) by adding at the end the following:
``(m) Standard of Conduct.--

[[Page S3376]]

``(1) In general.--Notwithstanding any other provision of
this Act or the Investment Advisers Act of 1940, the
Commission shall promulgate rules to provide that, with
respect to a broker or dealer, when providing personalized
investment advice about securities to a retail customer (and
such other customers as the Commission may by rule provide),
the standard of conduct for such broker or dealer with
respect to such customer shall be the same as the standard of
conduct applicable to an investment adviser under section 211
of the Investment Advisers Act of 1940. The receipt of
compensation based on commission or other standard
compensation for the sale of securities shall not, in and of
itself, be considered a violation of such standard applied to
a broker or dealer. Nothing in this section shall require a
broker or dealer or registered representative to have a
continuing duty of care or loyalty to the customer after
providing personalized investment advice about securities.
``(2) Disclosure of range of products offered.--Where a
broker or dealer sells only proprietary or other limited
range of products, as determined by the Commission, the
Commission shall by rule require that such broker or dealer
provide notice to each retail customer and obtain the consent
or acknowledgment of the customer. The sale of only
proprietary or other limited range of products by a broker or
dealer shall not, in and of itself, be considered a violation
of the standard set forth in paragraph (1).
``(3) Retail customer defined.--For purposes of this
subsection, the term `retail customer' means a natural
person, or the legal representative of such natural person,
who--
``(A) receives personalized investment advice about
securities from a broker or dealer; and
``(B) uses such advice primarily for personal, family, or
household purposes.
``(n) Other Matters.--The Commission shall--
``(1) facilitate the provision of simple and clear
disclosures to investors regarding the terms of their
relationships with brokers, dealers, and investment advisers,
including any material conflicts of interest; and
``(2) examine and, where appropriate, promulgate rules
prohibiting or restricting certain sales practices, conflicts
of interest, and compensation schemes for brokers, dealers,
and investment advisers that the Commission deems contrary to
the public interest and the protection of investors.''.
(2) Investment advisers act of 1940.--Section 211 of the
Investment Advisers Act of 1940 is amended by adding at the
end the following new subsections:
``(f) Standard of Conduct.--
``(1) In general.--The Commission shall promulgate rules to
provide that the standard of conduct for all brokers,
dealers, and investment advisers, when providing personalized
investment advice about securities to retail customers (and
such other customers as the Commission may by rule provide),
shall be to act in the best interest of the customer without
regard to the financial or other interest of the broker,
dealer, or investment adviser providing the advice. In
accordance with such rules, any material conflicts of
interest shall be disclosed and may be consented to by the
customer. Such rules shall provide that such standard of
conduct shall be no less stringent than the standard
applicable to investment advisers under paragraph (1) and (2)
of section 206 of this Act when providing personalized
investment advice about securities, except the Commission
shall not ascribe a meaning to the term `customer' that would
include an investor in a private fund managed by an
investment adviser, where such private fund has entered into
an advisory contract with such adviser. The receipt of
compensation based on commission or fees shall not, in and of
itself, be considered a violation of such standard applied to
a broker, dealer, or investment adviser.
``(2) Retail customer defined.--For purposes of this
subsection, the term `retail customer' means a natural
person, or the legal representative of such natural person,
who--
``(A) receives personalized investment advice about
securities from a broker, dealer, or investment adviser; and
``(B) uses such advice primarily for personal, family, or
household purposes.
``(g) Other Matters.--The Commission shall--
``(1) facilitate the provision of simple and clear
disclosures to investors regarding the terms of their
relationships with brokers, dealers, and investment advisers,
including any material conflicts of interest; and
``(2) examine and, where appropriate, promulgate rules
prohibiting or restricting certain sales practices, conflicts
of interest, and compensation schemes for brokers, dealers,
and investment advisers that the Commission deems contrary to
the public interest and the protection of investors.''.
(b) Harmonization of Enforcement.--
(1) Securities exchange act of 1934.--Section 15 of the
Securities Exchange Act of 1934, as amended by subsection
(a)(1), is further amended by adding at the end the following
new subsection:
``(m) Harmonization of Enforcement.--The enforcement
authority of the Commission with respect to violations of the
standard of conduct applicable to a broker or dealer
providing personalized investment advice about securities to
a retail customer shall include--
``(1) the enforcement authority of the Commission with
respect to such violations provided under this Act; and
``(2) the enforcement authority of the Commission with
respect to violations of the standard of conduct applicable
to an investment advisor under the Investment Advisers Act of
1940, including the authority to impose sanctions for such
violations, and

the Commission shall seek to prosecute and sanction violators
of the standard of conduct applicable to a broker or dealer
providing personalized investment advice about securities to
a retail customer under this Act to same extent as the
Commission prosecutes and sanctions violators of the standard
of conduct applicable to an investment advisor under the
Investment Advisers Act of 1940.''.
(2) Investment advisers act of 1940.--Section 211 of the
Investment Advisers Act of 1940, as amended by subsection
(a)(2), is further amended by adding at the end the following
new subsection:
``(h) Harmonization of Enforcement.--The enforcement
authority of the Commission with respect to violations of the
standard of conduct applicable to an investment adviser shall
include--
``(1) the enforcement authority of the Commission with
respect to such violations provided under this Act; and
``(2) the enforcement authority of the Commission with
respect to violations of the standard of conduct applicable
to a broker or dealer providing personalized investment
advice about securities to a retail customer under the
Securities Exchange Act of 1934, including the authority to
impose sanctions for such violations, and

the Commission shall seek to prosecute and sanction violators
of the standard of conduct applicable to an investment
advisor under this Act to same extent as the Commission
prosecutes and sanctions violators of the standard of conduct
applicable to a broker or dealer providing personalized
investment advice about securities to a retail customer under
the Securities Exchange Act of 1934.''.
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