August 20, 2010
Why do regulators always need to "silo" every issue?? Apply the "golden rule" to all business. That said, this entire discussion is pointless. Whether a Broker / Dealer (BD) or an Investment Advisor (IA), "doing what's best for the client" is equally necessary - and mandated. Only the lawyers benefit by drawing distinctions here.
It's simple - do what's best for the client - and that is NOT always a function of price. Cheaper is rarely better in any other industry - so the focus on fees / costs to the consumer is misguided in financial services. I hear Ms. Shapiro hates that brokers are sitting around collecting 12b-1 fees - and doing nothing to earn them. Two points - 1) The phone rings both ways - and clients can always call the broker - mine call me whenever they need anything - and I'm very responsive - it's my job. 2) The 12b-1 fee is often a meaningful source of revenue to the broker - so, it makes no sense that they would not be mindful of the clients who own those investments. It's never wise to make blanket assumptions about an entire industry - by the actions of a few.
Now back to the lawyers. The reason we're all so afraid of being held to the "higher" standard of IA versus BD is the increased liability. It seems to me this is as simple as "unsolicited" versus "solicited"/"discretionary." If it's MY idea , I'd better be doing what's best for the client - and, if I'm not, well, I could be liable, BUT we need to all acknowledge that Financial Advisors are asked to "predict the future" - which is not possible for anyone - so liability needs to be capped - and "innocent until proven guilty" strongly enforced. If it's the CLIENT's idea - well, to some degree, they're on their own. That said, whether a BD or and IA, you should warn the client if their idea is potentially not in their best interest.
This is easy - the lawyers are simply making it too hard.