At a congressional hearing a couple of weeks ago, Sen. Susan Collins of Maine asked a lineup of current and former Goldman Sachs executives a simple question: Did they have a duty to act in their clients', not their firm's, best interest?
The query elicited some impressive verbal contortions. "I believe we have a duty to serve our clients well," one witness replied to the Republican senator. "It's our responsibility . . . in helping them transact at levels that are fair market prices and help meet their needs," said another. "Conceptually it seems like an interesting idea," said a third.
The witnesses could have avoided their discomfiture by sticking to the simple truth. The correct answer to the question of whether investment bankers have a duty to act in their clients' best interest is "no."
We may have put our finger here on one of the major problems with the state of our financial rules and regulations. Investment bankers and their professional cousins, broker-dealers, don't generally owe what's known as a "fiduciary duty" to their clients under federal or state laws (New York's state law is what normally applies).
Efforts in Washington to expand the fiduciary rule beyond its existing application to registered investment advisors have been consistently fought off by Wall Street and the insurance industry. But a new effort to add it to the financial reform bill now being debated by Congress is being mounted by Sen. Ted Kaufman (D-Del.), among others.
Read on.
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