August 29, 2010
I understand the difference between stock brokers and investment advisers, but it has taken a bit of reading (much more than a one-paragraph explanation) to fully understand the difference and its impact. The difference is not clear to members of the general public who may need investment advice. In fact, understanding the difference probably requires at least mild sophistication in financial matters, something that much of the general public lacks. Stock brokers (and brokerage firms) are disingenuous when they refer to themselves as "financial advisers" or "wealth managers."
I believe that full-service stock brokers and investment advisers should be held to the same standard, that of acting as fiduciary. In this era of discount brokerages and online trading, the primary reason to use a full-service broker is to obtain advice, and that advice needs to be in the best interest of the client. I hope that the SEC imposes the same standards on full-service stock brokers as it does on investment advisers. It would be reasonable to exempt discount brokers from this standard, because they do not dispense advice to the same degree. The large brokerage firms will probably object to imposition of a stricter standard; however, they might find that the stricter standard may lead to better retention of clients and inflow of new clients. I'm considering "firing" my broker; I would be less likely to do that if he were held to the standard of an investment adviser.
During this difficult economy (and with defined-contribution pension plans becoming more common), it is imperative that clients be able to obtain the best financial advice.
Thank you for the opportunity to express an opinion.
Steve Y. Tsai
Retired physician. I am not and have never been employed by the financial services industry.