Posted by on Mar 28, 2015 in Blog, Featured, Posts |

Image credit: Wall Street subway mosaic, Michael Daddino, flickr Creative Commons

By Jason Zweig

1:31 pm ET  Mar. 25, 2015

The controversy surrounding whether stockbrokers and other securities salespeople should be subject to a “fiduciary standard” is heating up.

The latest development: A report released Wednesday by the Public Investors Arbitration Bar Association, a trade group of attorneys who represent individual investors in claims against brokers and other securities salespeople, argues that many brokerage firms are trying to have it both ways on their obligations to investors.

According to the report, brokerage firms routinely advertise and market their services by saying that they put their clients’ best interests ahead of their own. But when clients allege in arbitration claims and litigation that brokers have mistreated them, the firms often respond that they owe no fiduciary duty to their clients.

Under current law, investment advisers—mutual-fund managers and many but not all financial planners, for instance—are fiduciaries who must put your interests ahead of their own and must seek to avoid any material conflicts between what is best for them and what is best for you.  Stockbrokers, on the other hand, must merely take reasonable steps to ensure that their recommendations are “suitable” for your needs, goals and risk profile.

An official of the Securities Industry and Financial Markets Association, the leading trade group for brokerage firms, said that there isn’t “any contradiction or inconsistency” in the positions cited in the report from the lawyers group.

Said Kevin Carroll, associate general counsel at Sifma: “In an arbitration, [brokerage] firms can only say they aren’t being held to a fiduciary standard by current regulation. They can’t lie and say they’re being held to a standard that they’re not being held to.”

On Tuesday, Securities and Exchange Commission Chairman Mary Jo White told the U.S. House of Representatives’ Committee on Financial Services that she expects the SEC to develop rules on subjecting brokers to a fiduciary standard “in the very near term.”

Meanwhile, the Labor Department has drafted a rule that would apply the fiduciary standard to all investment professionals responsible for managing retirement accounts. The Office of Management and Budget is already conducting a cost-benefit analysis on the rule, according to people familiar with the matter, and the Labor Department is expected to release the proposed rule for public comment later this year.

Also this week, New York City Comptroller Scott Stringer proposed that New York state legislators should require all brokers and financial advisers to disclose whether they abide by the fiduciary standard and, if not, to inform their clients “I am not a fiduciary,” along with mandatory warnings about conflicts of interest.


Source:, Total Return blog