Fiduciary Duties of Brokers, Investment Advisers,

Transcript:Fiduciary Duties of Brokers, Investment Advisers,:
Fiduciary Duties of Brokers, Investment Advisers, and Financial Planners Recent Observations, Current Issues Ron A. Rhoades, JD, CFP® Program Director, Financial Planning Program Alfred State College, Alfred, NY Were Brokers Fiduciaries in 1940? “Essentially, a broker or agent is a fiduciary and he thus standards in a position of trust and confidence with respect to his customer or principal. He must at all times, therefore, think and act as a fiduciary. He owest his customer or principal complete obedience, complete loyalty, and the exercise of his unbiased interest. The law will not permit a broker or agent to put himself in a position where he can be influenced by any considerations other than those to the best interests of his customer or principal … A broker may not in any way, nor in any amount, make a secret profit … his commission, if any, for services rendered … under the Rules of the Association must be a fair commission under all the relevant circumstances.” – from The Bulletin, published by the National Association of Securities Dealers, Volume I, Number 2 (June 22, 1940). Available at http://c0403731.cdn.cloudfiles.rackspacecloud.com/collection/papers/1940/1940_0622_NASDNews.pdf Were Brokers Fiduciaries in 1940? The SEC summarized a court decision finding that the furnishing of investment advice by a broker was a “fiduciary function.” The SEC stated: “In the Stelmack case the evidence showed that the firm obtained lists of holdings from certain customers and then sent to these customers analyses of their securities with recommendations listing securities to be retained, to be disposed of, and to be acquired … The [U.S. Securities and Exchange] Commission held that the conduct of the customers in soliciting the advice of the firm, their obvious expectation that it would act in their best interests, their reliance on its recommendations, and the conduct of the firm in making its advice and services available to them and in soliciting their confidence, pointed strongly to an agency relationship and that the very function of furnishing investment counsel constitutes a fiduciary function.” – from the 1942 SEC Annual Report, p. 15, referring to In the Matter of Willlam J. Stelmack Corporation, Securities Exchange Act Releases 2992 and 3254. Are Brokers Fiduciaries Now? Of course, Registered Investment Advisers (RIAs) and their investment adviser representatives (IARs) are fiduciaries, applying the Investment Advisers Act of 1940. Brokers and their registered representatives (RRs) are also always fiduciaries, within the scope of their services: This