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NY Times uncovers deeper fiduciary truth by interviewing wirehouse brokers

Yesterday's article in respected newspaper shows brokers themselves make no pretense about putting the client first

Author Elizabeth MacBride March 5, 2010 at 5:17 AM
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Blaine Aikin does not take a statement about the fiduciary standard at face value. Rather, he asks whether a person or organizations embraces the principals behind the existing standard.

Blaine Aikin

RJ Ellis

RJ Ellis

March 5, 2010 — 2:32 PM

“But in interviews, former and current brokers said the ad told only part of the story. All said their jobs depended less on giving advice and more on closing sales. The more money they brought in, the more they, and their firms, would earn.”

How is this different in the RIA or Trust world where fees are based on AuM. At least in the trust world, advisors are paid salaries and not taking home the AuM.

Stephen Winks

Stephen Winks

March 5, 2010 — 3:53 PM

The brokerage industry will forgo fiduciary standing because it requires accountability and transparency for every recommendation every broker makes. The processes, technology, functional division of labor, statutory documentation, conflict of interest management and advisory services support necessary to safely bring fiduciary standing within the reach of every advisor and consumer is simply not in place. This renders todays existing brokerage support infrastructure obsolete.

By treating trade execution as a cost center rather than a profit center, by eliminating securities lending, by eliminating free use of the client’s capital between trade execution and settlement, significant brokerage revenue sources which are in violation of fiduciary standing would have to be forgone. Thus it is not likely brokerage firms will empower or allow their brokers to act in a fiduciary capacity.

The solution is neither expensive or complex to execute. Assuming the broker is properly resourced with the enabling processes, technology, functional division of labor, statutory documentation, conflict of interest management, advisory sevices support, which would safely bring easily executed and managed fiduciary standing within the reach of every advisor, it is actually just as easy for brokers to fulfill their fiduciary obligations than not. Thus, given the cultural push back from the brokerage industry to support the fiduciary standing of the broker, given there is a definitive understanding of how large scale institutionalized support for fiduciary standing can be achieved which will safely bring fiduciary standing within the reach of every advisor, all the industry needs is market leadership, which is in short supply.

The broker is at the mercy of the firms they work for as to the level of counsel they provide. The answer must be a free market solution from next generation advisory services firms that have everything to gain and nothing to lose. Given a freemarket alternative, the broker has the option to choose to act in client’s best interests or in that of their supporting brokerage or custody firm. We know what the consumer prefers.

We are not there yet, but it is comming.


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