Why the big broker behind your financial adviser might be working against you
From: marketwatch.com
They say that if something looks, acts and quacks like a duck, it must be a duck.
But what if you take a bite of it and it tastes like chicken?
That’s the conundrum facing the financial-services world right now as the big brokerage houses try to convince the public through advertisements and actions that they are fiduciaries — putting consumers’ best interests first — right up until there is a dispute or a problem, at which point they no longer want the burden of making customers the first priority.
A report released this week by the Public Investors Arbitration Bar Association cited nine big brokerage houses for advertising as if they’re fiduciaries, but denying that standard and renouncing any requirement to avoid conflicted advice in private arbitration hearings.
The PIABA report agreed with conclusions from the Council of Economic Advisers, which said in a February study that investors lose up to $17 billion a year on their independent retirement accounts due to their advisers’ conflicts of interests. PIABA noted those total losses represent nearly $80 billion since the Dodd-Frank Act instructed the U.S. Securities and Exchange Commission (SEC) to study imposing a fiduciary standard rule on brokers to ban conflicted advice.
The timing of PIABA’s report is no coincidence; the SEC and the U.S. Department of Labor both appear poised to act on rules requiring a fiduciary standard.
The PIABA report cited ad pitches from nine leading brokerage firms — Merrill Lynch BAC, -0.06% , Fidelity Investments, Ameriprise AMP, -0.14% , Wells Fargo WFC, +0.26% , Morgan Stanley MS, +0.03% , Allstate Financial, UBS UBS, -2.04% , Berthel Fisher, and Charles Schwab SCHW, +0.01% – noting that statements like “It’s time for a financial strategy that puts your needs and priorities front and center” (from a Merrill ad) are at odds with how the firms work when investors file arbitration cases after suffering losses from conflicted advice.
Five of the firms — Ameriprise, Merrill Lynch, Fidelity, Wells Fargo, and Charles Schwab — have publicly stated that they support a fiduciary standard.
That disconnect between what is said and done in the financial-services business is the heart of the matter, but also the reason why this problem has lingered and won’t likely be solved by either the SEC or Labor Department any time soon.
The current rules state that anyone selling advice and counsel — someone whose focus is on the financial planning rather than on selling products — must live up to a fiduciary standard, meaning that they put the client’s best interest first.
Anyone selling products to investors lives by, instead, a suitability standard, meaning that what they sell must simply be suitable for the buyer.
