Investment advisers a/k/a stock brokers have a huge financial incentive to keep things as they are. Their present average bonus alone is reportedly $172,860. Robert Trigaux, “Wall Street Wants Big Profits, ‘Good Enough’ Advice” (posted on Tampa Bay Times March 13, 2015).
There is an ongoing struggle over the standard of behavior which these professionals ought to meet. The current standard of conduct which governs the way advisers/brokers treat their customers is “suitability,” i.e., whether the advice they give or the investment they recommend is “suitable.” Some call this the “suitability or ‘good enough’ standard”. Robert Trigaux, “Wall Street Wants Big Profits, ‘Good Enough’ Advice” (posted on Tampa Bay Times March 13, 2015).
One alternative is to hold the conduct of advisers/brokers to a fiduciary standard. The fiduciary standard is recommended by the president and consumer groups. Their proposed change to a fiduciary standard is not going anywhere. The current suitability standard is unlikely to change any time soon. The fiduciary standard is perhaps understandably opposed by Wall Street. Robert Trigaux, “Wall Street Wants Big Profits, ‘Good Enough’ Advice” (posted on Tampa Bay Times March 13, 2015).
Ms. Barbara Roper, the director of investor protection for the Consumer Federation of America put it this way, as quoted by the Wall Street Journal and the Tampa Bay Times:
This is as Orwellian as it gets. They will serve their clients best by defeating a regulation that would require them to do what’s best for their clients?
Please Read The Disclaimer. ©2015 by Dennis J. Wall, author of “Lender Force-Placed Insurance Practices” (American Bar Association 2015). All Rights Reserved.