August 29, 2010
I believe there is considerable confusion within the general public with the fiduciary duty, responsibilities, and titles of brokers, dealers and investment advisors. Moreover, any of these positions, like brokers, that are compensated on commissions and volume cannot provide a fair and honest duty to the general public relating to investment advice. Brokers currently have no fiduciary duty to their clients. Their primary duty has been to their brokerage firm and the large companies they represent when charged with "moving" the stock of those companies -- regardless of the inherent risks and/or financial problems that may exist.
The best scenario for the general public is to have brokers compensated on salary, not commissions, and for them to have a legal fiduciary duty to their clients on all investment advice and recommendations. In addition, the broker should be barred from owning any investment vehicle that they recommend to their clients.
Also, their needs to be similar regulation and clarity for dealers. How do they differ from brokers? How are they compensated to ensure fairness, reasonable care, and fiduciary responsibilities to their clients?
Investment advisors currently have a fiduciary duty to their clients. However, investment advisors should be certified and regulated to specialize in two or three financial areas to ensure expertise. Examples include: fixed income vehicles bonds commodities growth stocks versus speculative stocks emerging markets etc. By being certified in two or three areas, investment advisors can focus on clients seeking guidance in those areas and will be in a position to offer current, expertise advice.