Have you ever dealt with a broker who foiled your retirement plans? Now's your chance to tell an authority that is willing to listen.
The Securities and Exchange Commission is soliciting public comments to evaluate whether broker-dealers should be held to the same standard as investment advisers.
If you're not aware that they are held to different standards, join the crowd. There's a lot of confusion about this, but the SEC wants to make sure this confusion exists before it does anything about it.
Frankly, I find it confusing because brokers often call themselves financial consultants and advisers. So how is anyone supposed to know what they truly are? Bankrate's story "Finding a financial planner" helps explain the nuances.
In a nutshell: Brokers are held to suitability standards, which are looser than the standards to which investment advisers are held. As fiduciaries, investment advisers must serve their clients' best interests.
I have a friend -- let's call her Gullible Gladys -- who lost much of her inheritance to an unscrupulous broker who bought and sold securities on her behalf. Her mistake: She trusted he would act in her best interests. Instead, he churned her account, earning commissions on each trade, until her account dwindled down to a fraction of its former worth.
By the way, this happened during the 1990s, when chimpanzees could pick stocks as adroitly as seasoned money managers.
Bankrate's story called "Do investors win with the Frank-Dodd Act?" gives a little more background about the SEC's study and what it hopes to accomplish.
But here's an explanation from the SEC itself: It wishes to evaluate "the effectiveness of existing legal or regulatory standards of care for brokers, dealers, investment advisers, and persons associated with them when providing personalized investment advice and recommendations about securities to retail investors; and whether there are gaps, shortcomings, or overlaps in legal or regulatory standards in the protection of retail customers relating to the standards of care for these intermediaries."
Oh, brother! Why do government releases have to be so clunky and full of legalese? The release goes on for seven pages, saying the same thing over and over again.
The issue of different standards of care has been simmering for years. Brokers and dealers have been resistant to the idea of being held to higher standards. Why? Well, for one thing, it's going to cost them time, money and energy. For another, they are under constant pressure to generate revenues for their firms. How will they be able to make a lot of money off their customers and still serve their best interests? It's a dilemma that might interfere with their clients' retirement plans.
This conflict won't be resolved until the SEC gets irrefutable evidence that brokers should be held to a higher standard. Let's give the SEC an earful. We've got a month to submit our comments.
Have you been ripped off by a broker or an investment adviser? Share your experiences, but please don't use specific names or I'll have to delete your comment.
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