There has been plenty of debate in Washington over whether broker-dealers should be subject to the same legal standard as registered investment advisers — this is the so-called “fiduciary rule.” Plainly stated (and without reference to differences is federal and state laws), investment advisers are required to act in the best interests of their clients. This means that investment advisers have to put their clients’ interests ahead of their own when giving securities advice.
But, unlike investment advisers, stockbrokers (otherwise known as financial planners, representatives, vice presidents, executives, etc.) who work at broker-dealers are not subject to a fiduciary standard. This means that clients of these broker-dealers cannot require that their brokers act in the client’s best interest. In day-to-day life, this means that stockbrokers can guide customers into investments that will benefit the stockbroker more than the customer! Ultimately, customer’s have a more difficult task of recovering investment losses from self-serving brokers who treat their customers’ accounts like his own ATM machine. Surely, if customers fully understood the ramifications of this debate, they would vote with their feet and stop doing business with broker-dealers that are unwilling to adopt a fiduciary standard.
Wall Street still has some politicians fighting hard to keep things just as they are now and deter the application of a universal fiduciary standard applicable to all investment professionals who give securities advice. Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Capital Markets subcommittee, appeared at a Capitol Hill press conference with GOP colleagues to criticize what they called the negative impact of Dodd-Frank regulations. Mr. Garrett suggested that the Securities and Exchange Commission (SEC) step back and consider whether a fiduciary duty rule is even necessary. “The SEC must produce data to show what problems would be solved in this area,” said Mr. Garrett, who will chair the Sept. 13 hearing. Mr. Garrett clearly does not understand what he is saying — common sense dictates that investors would be better off if broker-dealers were required to put customer interests ahead of their own. Mr. Garrett — one data point to consider is that you are putting protection of broker-dealers ahead of investor protection.
The two obvious reasons that broker-dealers are afraid of the fiduciary rule is (1) because will potentially earn less money as a result of not being able to dump high commission, low quality investment products on their clients, and (2) customer’s will have an easier time recovering investment losses from self-serving broker-dealers.
At Wittenberg Law, we believe that investors should take matters into their own hands and reject political ranker and filibuster when it comes to investor protection. We do not believe that we need to rely upon politicians and government entities such as the SEC to protect us. We believe that all investors deserve conflict free investment counsel. We can help you take back the power and to hold advisers accountable for their conflicted, self-serving investment recommendations.