In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act went into effect. The federal legislation requires the Securities Exchange Commission to conduct a study by January 2011 to determine whether a fiduciary standard, which requires financial advisors to put their clients’ interests first, should be applied to all financial professionals giving personalized investment advice.
Given Wall Street firm’s advertisements which depict their financial advisors as one of your family, most investors already think that their financial advisor is acting in their best interest. Unfortunately, that is not necessarily the case. Not all financial advisors are held to the same standard. Currently, financial advisors that sell investments for brokerage firms like Merrill Lynch are held to a suitability (i.e. reasonable) standard and investment advisors are held to a fiduciary standard.
For years, Wall Street firms have maintained that the suitability standard is a lower standard that does not require their advisors to put their clients’ interests first or to disclose all conflicts of interest. According to Wall Street firms, their investors make all of the investment decisions and the financial advisor is simply an order taker. Don’t believe me? Sue a brokerage firm for giving bad investment advice and count how many times the words “order taker” are stated in the firm’s Answer.
Advocates for investors have disputed Wall Street’s characterization of their legal duties and have long argued that they should be held to the fiduciary standard as well because financial advisors hold themselves out to investors as experts on investing. Trust is at the heart of the relationship. A recently conducted study of investor perceptions supports investors.
According to a September 15th article in Investment News entitled Investors Think Brokers Are Fiduciaries, Survey Says, among 1,319 investors it surveyed, 91% believe that a financial advisor and investment advisor should follow the same investor protection rules and 96% favor applying those uniform rules to insurace agents as well. In addition, 97% said that financial advisors should put investors’ interests ahead of their own and disclose fees and conflicts of interest.
The study also found that more than half of investors are confused about the standards of care that different advisors must meet, and that at least 60% said that they assume that insurance agents and stockbrokers are already held to the fiduciary standard.
I hope that the SEC definitively puts an end to Wall Street’s semantical game playing and holds all financial advisors to the same high fiduciary standard that investors already expect.
If you believe that you have been the victim of bad financial advice and suffered losses, feel free to contact us for a free consultation.
Jason Doss is the owner of The Doss Firm, LLC, an Atlanta-based law firm devoted to representing consumers across the country in a variety of areas including investment disputes and consumer class action litigation. Mr. Doss earned his J.D. from Florida State University in 2002 and his B.A. from the University of Florida in 1997.