August 30, 2010
ALL brokers and dealers and “financial advisors” (which most individual brokers and dealers seem to be called these days) should be always be required by law to act in the best interests of their clients for all purposes (and, in furtherance thereof, to put their clients interests over their own interests in all cases). In other words, ALL persons who render advice regarding the purchase or sale of or who engage in the solicitation of purchases and sales of securities should have this fiduciary duty to ALL of their clients in ALL cases for ALL purposes.
Why? Well, because, in my view, the SEC has heretofore been WAY out of line in allowing persons who do these things not to be treated in the same ways as registered investment advisors, particularly when they are licensed as registered investment advisors in addition to their other licenses; and the SEC has heretofore, wrongly in my view, exempted individual brokers and dealers from these obligations due to industry lobbying. IT WOULD BE ABSURD TO BELIEVE THAT THE VAST MAJORITY OF CLIENTS DON’T BELIEVE THAT THEIR INDIVIDUAL ADVISORS ARE LEGALLY REQUIRED TO ACT IN THEIR BEST INTERESTS ANYWAY, EVEN THOUGH THE REALITY IS VERY DIFFERENT. For example, even when they are exempted from complying with these fiduciary standards, many of these people tell their clients that they are registered investment advisers, from which it’s only normal for the client to assume that the recommendations they are receiving are coupled with fiduciary duties even when they aren’t.
If you don’t impose this requirement, then, at the very least, you should require the individual brokers and dealers involved to disclose the fact that they have no fiduciary duty to act in the client’s best interests; and to do so prominently in an unmistakably clear way, without ambiguity or being buried in the fine print (e.g., one form should use plain English in large, bold faced type to make this disclosure; the client should sign the disclosure form; brokerage firms should be required to keep the signed copy; and this procedure should be required at least once per year).
Respectfully submitted,
G.Kirk Ellis, Esq.