Brokers Are Not Just "Order-Takers"

The financial world has been undergoing several years of reform, to varying degrees of success. But the more circumscribed world of financial advisers has lagged behind--until now. If you’re an investor or even just a casual reader of the Business or Financial pages of the newspaper, get ready to hear a lot more about “fiduciary standard” in the next few years.

According to several recent articles, the SEC is gearing up its campaign to raise the standard for financial advisers who often claim, especially when they’re being sued for misconduct or negligence, that they’re only “order-takers” when it comes to important investment decisions. Yeah, right. Then why all the fees? And why call themselves “advisers” at all?


The truth is, at the moment, financial advisers are held to a somewhat lower standard of fiduciary obligation known as “suitability.” This standard involves a suitable match between a customer’s stated investment objectives and risk-tolerance and the financial products a financial advisor places them in. The SEC’s new standard would raise the bar. Brokers would not simply be asked to ensure that investments comply with suitability, but that brokers uphold the interests of their clients absolutely. As an article on CNBC mentions, “The current regulatory system means that brokers are legally permitted to recommend a higher-priced mutual fund to investors even if they know a low-cost one with better returns exists. Many brokers are compensated partly by commissions from mutual funds.”


With the SEC’s help, the world of investment just may become a little safer and more friendly to the interests of investors whose money is at stake in the first place. After all, shouldn’t financial advisors who are responsible for the life-savings of many of their customers, be held to professional standards that resemble the standards of lawyers, doctors, and CPAs? Of course they should. Right now, brokers are having it both ways. They take significant fees for their expertise, but they deny responsibility when that “expertise” fails them and damages customers.