Blinding glimpse of the obvious

In a blinding glimpse of the obvious, over last weekend the SEC recommended that Broker Dealers should be held to the same ethical standards as Registered Investment Advisors. Unless I’m missing something, it doesn’t seem unreasonable to ask trusted financial advisors to deliver honest and objective advice. For those of you that don’t understand the difference between a fiduciary and a broker dealer or stock broker salesman here is the short course:

Fiduciary Standard: The truth, the whole truth and nothing but the truth. All relevant information must be fully disclosed and recommendations must be in the best interest of the client.

Suitability Standard: The recommendation is not so horrible as to gag a maggot. It is not necessarily the best product for your needs, and could have been selected because of its outrageously high commissions, revenue sharing between the product provider and the broker dealer, the need to sell the broker-dealer’s proprietary product, or because the broker-dealer needs to unload a bunch of junk they are presently holding in their own portfolio. Or, perhaps, we created a product destined to fail, recommended it to you, and then bet against you. Of course, our own people might have rejected it for a trust to benefit our executives, but there is no problem recommending it to you.

If, by happy chance this transaction turns out well for you, it’s a mere coincidence. The important thing is it is designed to turn out well for the brokerage house.

Even though you trusted us we will swear in court that we held no fiduciary obligation but instead merely “facilitated a transaction”.

None of this is any of your business and we are certainly not obliged to tell you.

Welcome to business as usual on Wall Street.

Of course, investors have always had another choice to use a Fee-Only Registered Investment Advisor that provides a written fiduciary pledge. That’s another blinding glimpse of the obvious.

For more on fiduciary standards see

Frank Armstrong, III

President, Investor Solutions, Inc.

By | 2011-02-01T14:36:43+00:00 February 1st, 2011|Blog|

About the Author: