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Broker-Dealers, Institutional Investors, And Fiduciary Duty: Much Ado About Nothing, Lin (Lynn) Bai

Faculty Articles and Other Publications

Under the mandate of Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC is soliciting public opinions on whether broker-dealers should be subject to a fiduciary duty when advising retail and institutional investors. This paper focuses on the advisability of such a proposal for institutional investors. It shows that (1) a fiduciary duty could potentially enhance broker-dealers’ standard of conduct for only a subset of institutional investors who are well capitalized, capable of assessing risks independently, and acknowledge in writing their non-reliance on broker-dealers’ advice. Thus, the benefit of fiduciary duty is much narrower than what its …