A big “thank you” to the New York Times for allowing writer Tara Siegel Bernard in her article titled “Dear S.E.C., Please Make Brokers Accountable to Customers” to present an open letter to Mary Schapiro of the S.E.C. on the eve of her assignment to put in writing a new rule requiring stock and insurance brokers to put their customers’ interests before their own. Finally, a treatise on behalf of the regular investor! The big problem is that most investors already believe that their interests come first. Unfortunately, that’s not always the case.
First there is the conflict of semantics. In certain states, a broker is not held to the same standard as an investment adviser. In those states, the broker is required to merely find a “suitable” investment for his client while the investment adviser is required to put the customer’s interest first. As these terms “broker” and “investment adviser” are often used interchangeably the law should require the higher standard for both.
Arguments against such a change range from outright lies to the absurd. Even the study commissioned by the Securities Industry and Financial Markets Association, a trade group for the big banks and brokers, came to the conclusion that a higher fiduciary duty was “bad” for customers. Some say that the brokers can no longer charge commissions under a new rule. According to the Dodd-Frank Act, receiving commissions is not a violation of a fiduciary standard. Instead of waxing on and on about how much more money it might cost the investor, their time could have been better spent figuring out other ways to charge for advice. Another argument is that a broader fiduciary standard could limit products available to a customer such as securities available through the firm employing the broker that usually pays higher commissions. However that can be handled by full disclosure and getting permission from clients before purchasing products.
Above all, many industry experts agree with Ms Bernard in that any new rule must be understandable and attack the real problems with appropriate disclosures. Even though it may cost brokerage firms millions of dollars and many hours to put a new standard into effect it should be considered a marketing expense. At the very least it will provide brokers with a new marketing pitch and make it clear that the client’s interest comes first.
If it is too late and you have been victimized by brokers not putting your interests first, call Page Perry, an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have assisted dozens of investors in recovering over $120 million from brokerage firms since 2005 and have aided clients who have been the victims of financial adviser abuse and scams. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding their investment problems. For further information, please contact us.