Wall Street Trade Association Supports Fiduciary Standard


The Securities Industry and Financial Markets Association, an important Wall Street lobbying group, has decided to support the Obama administration’s proposal to hold brokers to the same standard as a fiduciary when they provide investment advice, according to a recent report in The Wall Street Journal. While investors who sue their brokers have long argued, with considerable success, that a fiduciary duty arises whenever there is a relationship of trust and confidence between broker and investor, that determination is presently made on a case by case basis under laws that vary from state to state. A federal standard, which is more likely to pass now that it has been endorsed by the industry, would make it easier for investors to prevail in claims against brokers.

It is well accepted that a financial advisor is subject to a fiduciary standard, which requires that the advisor put the client’s interests first. On the other hand, in certain jurisdictions, a broker-dealer who merely makes transactions and only gives incidental advice has been held to a lower suitability standard–meaning that the broker-dealer only owes a duty to recommend investments that are suitable for the client?unless there are circumstances from which a court or arbitration panel can find that the broker fostered a relationship of confidence and trust and was more than just an “order-taker.” Many brokerage firms that hold their brokers out as financial advisors already embrace the fiduciary standard, but others, particularly discount brokerages that do not typically offer advice, are resistant to the change because it is often difficult to draw the line between offering advice and making a trade.

“The more professional the financial industry becomes,” says Craig T. Jones, an Atlanta lawyer who handles investor fraud cases, “the higher the standards it is expected to uphold. It is ultimately better for the industry to be held to a higher standard, not only because brokers will be under pressure to provide the best possible service but because it will increase investor confidence in an industry that has taken a lot of hits lately.”

Jones’ law firm, Page Perry in Atlanta, Georgia, represents investors in securities and investment fraud cases all over the country.