I’'ve been indulging my guilty pleasure lately by reading about the SEC’s complicated history with the fiduciary standard. Ron Rhoades of Alfred State College (and chairman of the Committee for the Fiduciary Standard) and W. Scott Simon, author of The Prudent Investor Act: A Guide to Understanding, have been blogging about this extensively, but here’s the CliffsNotes version: When the SEC was created, there was no question that the intent was to separate brokers and stock touts from “honest advisors” in the nation’s regulatory scheme. 

In case this was unclear, the SEC’s Seventh Annual Report, issued in 1941, stated that “if the transaction is in reality an arm’s length transaction between the securities house and its customer, then the securities house is not subject to ‘fiduciary duty.’ However, the necessity for a transaction to be really at arm’s length in order to escape fiduciary obligations has been well stated by the U.S. Court of Appeals. ... He who would deal at arm’s length must stand at arm’s length. And he must do so openly as an adversary, not disguised as confidant and protector.”

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