The Washington Independent
The Washington Independent

Financial Advisers Resist Requirement to Give You Good Advice

Thomas Dixon
News
Last updated: Jul 31, 2020 | Feb 16, 2010

If you were wondering what security and investment firms spent $93 million lobbying about last year, look no further than today’s New York Times, in which Tara Siegel Bernard reveals that they are lobbying for the right to give you bad financial advice as long as it makes them money.

At issue is whether brokers should be required to put their clients’ interest first — what is known as fiduciary duty. The professionals known as investment advisers already hold to that standard. But brokers at firms like Merrill Lynch and Morgan Stanley Smith Barney, or those who sell variable annuities, are often held to a lesser standard, one that requires them only to steer their clients to investments that are considered “suitable.” Those investments may be lucrative for the broker at the clients’ expense.

Their lobbyists are spending money to kill a requirement that brokers steer their own clients to transactions in the best interests of the clients rather than the broker — because, apparently, that’s not what they are actually doing. It’s like those cartoon Charles Schwab commercials were telling you the truth!

The financial reform bill promoted by Sen. Chris Dodd (D-Conn.) would eliminate a decades-old exemption that allows brokers to claim that they aren’t financial advisers — and thus required to provide advice in the clients’ best interests — as long as they aren’t getting paid for the advice. So, if your broker gives you advice of what to buy, but he’s only paid for the act of buying it, your interests never have to come first. Brokers, naturally, prefer the House legislation which allows them to continue to sell you bad investments as long as they tell you first that you ought to make better ones.

Insurance companies, by the way, want to be left out of that regulation all together, because they’re not even interested in steering their clients to “suitable” insurance products. As far as they’re concerned, “Buyer Beware” is a good enough standard.

Thomas Dixon | He creates the ideal marketing experience by connecting online brands with their target audiences. He recently completed a research paper on consumer conversion and took part in a community project on SEO optimization. Thomas is working on his Bachelor of Arts in Communications and plans to intern in an online marketing department soon.

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