Although it has been many years since Yogi Berra uttered this famous line, it seems like he must have been thinking about the debate regarding the adoption of a uniform fiduciary duty standard. All kidding aside, one SEC commissioner recently expressed his doubts regarding the SEC proposing such a rule for those who give retail investment advice.
From all accounts, there appears to be a split, along party lines, of the SEC Commissioners on the adoption of such a rule. Some argue that a rule should be adopted because investors do not understand the difference between the duties of investment advisors and broker dealers.
In my view, the confusion has been spawned by the ongoing debate. For broker-dealers, separate confusion can also be found with FINRA arbitration panels, some of which do not know that broker-dealers do not have a fiduciary duty to their customers. So where does this leave us?
In my experience defending retail broker-dealers, I have found that most customers assume that there is such a duty on their brokers, only to be shocked to hear in closing argument that it does not exist. Nevertheless, there is a take away from this improper assumption most customers make.
While the debate rages, broker-dealers should be taking a harder look at the suitability of their investment recommendations. By taking a harder look, not only do you satisfy your legal obligations, but also may also satisfy the “expectations” of your customers. Doing that may help you avoid the likelihood of customer claims and, if you have one, a better suitability defense on top of that.
* photo from freedigitalphotos.net