August 2, 2010
I strongly believe that the study should focus on the understanding of the investing public. Investment professionals know that clients do not understand the dynamics of the marketplace. They do not understand that stock brokers are pushing the products supported by their firms and receiving commissions on the transactions. The stock brokers send the "signal" to their clients, by calling themselves wealth managers or some such name, that they are working for the client. The clients do not know any better. The suitability standard is far too lenient to protect the public.
I've been in the business of providing investment advice to my clients for almost 20 years. I have always operated under the concept of a fiduciary standard. I cannot reconcile any other business model. The idea that a salesman can represent himself as a trusted advisor (and stock brokers and broker-dealer reps do just that all day every day) is repugnant to me. Most investors do not know about B-D's "making a market" in a particular security. Most B-D reps are about as likely to sell another's product as the Chevy salesman is to offer a Ford. It will take a federal agency to write new regulations that take away the possibility of such a subterfuge and protect the public. All the forms that one signs that says they agree do not really help. Just examine the number of terrible mortgages written, all legal, that caused the horrid financial meltdown on 2008.
The only proper outcome is to require all purveyors of investment services to retail clients to act as a fiduciary for their clients, or to present the client with a clearly phrased statement that says they do not do that. And have the client sign saying they understand that the broker is working in the interest of himself and the brokerage, not the client. That should do it. Any other outcome from the study will clearly indicate the SEC is in the pocket of the broker-dealers who can't stand the heat.