	Introduction

Brokers and dealers and investment advisers have been held to different standards of conduct in their dealings with investors. In very general terms, a broker-dealer is held to a suitability standard, and an investment adviser is held to a fiduciary duty standard. With passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which tasks the Securities and Exchange Commission (SEC) with issuing rules concerning the standards of conduct for brokers, dealers, and investment advisers, the current standards may be changed. FINRA is a self-regulatory organization, "the largest independent regulator for all securities firms doing business in the United States," and issues rules that the SEC may oversee. An individual investor wishing to pursue action against a broker-dealer for recommending an unsuitable investment will often have to allege the violation of the general anti-fraud provision of the Securities Exchange Act, Section 10(b), and the SEC rule issued to implement the statute, Rule 10b-5. To pursue a Section 10(b) violation, an individual plaintiff must allege that, in connection with the purchase or sale of securities, he relied on a misstatement or omission of a material fact made with scienter by the defendant and that this reliance caused his injury. Investors seeking to sue a broker-dealer for violation of the suitability rule may also have to comply with the requirements of the Private Securities Litigation Reform Act (PSLRA). Standard of Conduct for Investment Advisers

In contrast to the suitability standard, which is most often applied to broker-dealers, investment advisers usually have a fiduciary duty with respect to investors. Although the Investment Advisers Act does not use the word "fiduciary" to apply to the standard of conduct to which an investment adviser is held in managing a client's account, court cases have interpreted that an investment adviser has a fiduciary duty. Changes to the standards of conduct applied to broker-dealers and investment advisers were present in both the House and the Senate versions of financial regulatory reform. However, the House and the Senate had different approaches to this issue. The House approach was to harmonize the fiduciary standard for brokers, dealers, and investment advisers. The House and Senate conferees on Wall Street reform approved a financial regulatory reform bill. 4173 , now referred to as the Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank forged a kind of compromise between the House and Senate approaches. Section 913 of the legislation, titled "Study and Rulemaking regarding Obligations of Brokers, Dealers, and Investment Advisers," is the major provision setting out the new approach toward defining standards of conduct for these financial industry professionals. Subsection (c) sets out what the SEC is required to consider in conducting the study: (1) the effectiveness of current legal or regulatory standards of care which have been imposed by the SEC or a national securities association and other federal and state legal or regulatory standards; (2) whether there are legal or regulatory gaps, shortcomings, or overlaps in the standards of conduct for protecting retail customers that should be addressed by rule or statute; (3) whether retail customers understand that there are different standards of care applicable to brokers, dealers, and investment advisers in the provision of personalized investment advice about securities to retail customers; (4) whether the existence of different standards of care concerning the quality of personalized investment advice that retail customers receive is confusing to them; (5) the resources and activities of the SEC, the states, and a national securities association to enforce the standards of care, including the effectiveness of examinations of brokers, dealers, and investment advisers in determining compliance with regulations, the frequency of examinations, and the length of time of the examinations; (6) the substantive differences in regulating brokers, dealers, and investment advisers in their providing personalized investment advice and recommendations about securities to retail customers; (7) specific instances concerning personalized investment advice about securities in which regulation and oversight of investment advisers provide greater protection than regulation and oversight of brokers and dealers and instances in which regulation and oversight of brokers and dealers provide greater protection than regulation and oversight of investment advisers; (8) existing legal or regulatory standards of state securities regulators and other regulators intended to protect retail customers; (9) the potential impact on retail customers of imposing upon brokers and dealers the standard of care applied under the Investment Advisers Act; (10) the potential impact of eliminating the broker and dealer exclusion from the definition of "investment adviser" in the Investment Advisers Act; (11) the varying level of services provided by brokers, dealers, and investment advisers to retail customers; (12) the potential impact on retail customers that could result from changing the regulatory requirements or legal standards of care affecting brokers, dealers, and investment advisers concerning their obligations to retail customers about investment advice; (13) the potential additional costs to retail customers concerning the potential impact on the profitability of their investment decisions and to brokers, dealers, and investment advisers resulting from changes to the regulatory requirements or legal standards affecting brokers, dealers, or investment advisers; and (14) any other consideration that the SEC considers necessary and appropriate in determining whether to conduct a rulemaking. However, it must be kept in mind that the SEC has expressed no formal view concerning the analysis, findings, or conclusions of the study. She indicated that such a rule is a high priority for the SEC.
Brokers and dealers and investment advisers have been held to different standards of conduct in their dealings with investors. In very general terms, a broker-dealer is held to a suitability standard, and an investment adviser is held to a fiduciary duty standard. With passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203), which tasks the Securities and Exchange Commission (SEC) with issuing rules concerning the standards of conduct for brokers, dealers, and investment advisers, the current standards may be changed.
The Financial Industry Regulatory Authority, a self-regulatory organization that oversees securities firms doing business in the United States and issues rules that the Securities and Exchange Commission may oversee, enforces a suitability standard for brokers and dealers. The standard requires that brokers and dealers assess their customers' knowledge of securities and their financial situations and recommend securities that are suitable for their customers.
An individual investor wishing to pursue action against a broker-dealer for recommending an unsuitable investment will often have to allege the violation of the general anti-fraud provision of the Securities Exchange Act, Section 10(b), and the SEC rule issued to implement the statute, Rule 10b-5. To pursue a Section 10(b) violation, an individual plaintiff must allege that, in connection with the purchase or sale of securities, he relied on a misstatement or omission of a material fact made with scienter by the defendant and that this reliance caused his injury. Investors seeking to sue a broker-dealer for violation of the suitability rule may also have to comply with the requirements of the Private Securities Litigation Reform Act.
In contrast to the suitability standard, which is most often applied to broker-dealers, investment advisers usually have a fiduciary duty with respect to investors. An investment adviser comes within the requirements of the Investment Advisers Act. Although the Investment Advisers Act does not use the word "fiduciary" to apply to the standard of conduct to which an investment adviser is held in managing a client's account, court cases have interpreted that an investment adviser has a fiduciary duty.
Changes to the standards of conduct applied to broker-dealers and investment advisers were present in both the House and the Senate versions of financial regulatory reform. However, the House and the Senate had different approaches to this issue. The House approach was to harmonize the fiduciary standard for brokers, dealers, and investment advisers. The Senate approach was to have the SEC conduct a study to evaluate the effectiveness of existing standards of conduct for brokers, dealers, and investment advisers. The House and Senate conferees on Wall Street reform approved a financial regulatory reform bill, called the Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank forged a kind of compromise between the House and Senate approaches. Section 913 of the legislation, titled "Study and Rulemaking regarding Obligations of Brokers, Dealers, and Investment Advisers," is the major provision setting out the new approach toward defining standards of conduct for these financial industry professionals. It requires the SEC to conduct a study to evaluate the effectiveness of the current legal or regulatory standards of care for brokers, dealers, and investment advisers and whether there are legal gaps, shortcomings, or overlaps in the standards. Criteria that the SEC must consider are set out. In January 2011, the SEC staff issued a study recommending a uniform fiduciary standard, but the SEC has expressed no formal view about the analysis, findings, or conclusions of the study. The SEC has not yet issued new rules concerning the standards of conduct to be applied to brokers, dealers, and investment advisers, but in March 2015 SEC Chair Mary Jo White expressed her view that tighter standards are needed for most kinds of financial advisers who recommend investments. She indicated that consideration of this issue is a high priority for the SEC. This report will be updated as warranted.