Posts Tagged ‘broker-dealers’

FINRA Agrees that a Fiduciary Standard Makes Sense for Broker-Dealers

Written on May 14th, 2009 by Jason M. Kueserno shouts

For the first time, FINRA has publicly stated that it “makes sense” that broker-dealers who provide investment advice should be held to the same fiduciary standard that applies to Registered Investment Advisers.

This is a significant development because broker-dealers and their representatives have relied upon an exemption in the Investment Advisers Act of 1940 to escape these duties. The Investment Advisers Act exempts “any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor” from its coverage.

Broker-dealers consistently take the position that their compensation is “solely incidental” to their broker-dealer business. However, virtually every broker-dealer has shifted their business model from that of the traditional “stock broker” to that of an investment adviser. These firms now call their representatives “investment advisers,” “financial advisers,” “wealth managers,” and other titles that reflect that their representatives provide broad advisory and/or management services.

While FINRA does not feel that it is necessary to change its suitability rules, extending fiduciary duties to broker-dealers is a significant step to increasing the rights and protection afforded to investors.

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