Hybrid Reps Not Held to Highest Standard of Conduct - Yet.

As the debate continues to rage within the financial industry over which professional standard of conduct financial advisors should be held to, a new report suggests that brokers are evolving faster than the rules themselves. According to a new study by securities industry watchdog, FINRA, the Financial Industry Regulatory Authority, the number of so-called "hybrid" brokers has exploded in recent years, now comprising 45% of all brokers. In this, the first ever snapshot of the industry's professional growth conducted by FINRA, the number of total broker-dealers has risen steadily over the past decade. Growth in hybrid reps, however, has easily outstripped growth in both of the discrete categories of broker and investment advisor.

What Is a Hybrid Rep or Hybrid Broker?

Traditionally, the financial industry has been separated into two distinct quarters, one belonging to stock brokers and financial advisors and the other to investment advisors. In very simple terms, brokers and FAs typically do not offer investment advice or guidance but rather execute orders on behalf of their clients. Investment advisors, on the other hand, do offer advice and manage investments personally.

Because of this difference, investment advisors have historically been held to a higher standard of professional conduct than their broker counterparts. IAs must uphold what is known as the standard of "fiduciary duty," which means they must always act in the best-interest of their client. FAs, by contrast, are held to the "suitability standard," which states that the investor's profile and preferences must match his or her investment portfolio on an ongoing basis. If you couldn't tell, the fiduciary standard is more stringent and allows for much less "gray area" than the suitability standard.

Hybrid Brokers and the Fiduciary Standard

The current controversy, fueled by reports of the explosive growth of hybrid reps, is over whether or not hybrid brokers who function dually as stock brokers and investment advisors should be held to the fiduciary or suitability standard. Investor advocacy groups point out that investors lose billions of dollars per year to unscrupulous or irresponsible practices by financial professionals who exploit the "gray area" permitted by the suitability standard, and so our best bet is to hold all financial professionals who deal with the retail investors to the fiduciary standard. The industry, of course, objects to this blanket treatment of brokers and IAs and claims that enforcing the higher standard and any legal costs associated with being held accountable for infractions against the higher standard would constitute a severe hardship.

FA, IA, or Hybrid Rep? Know Who You're Dealing With

Investors who are unsure whether their financial professional is a straightforward FA, IA, or hybrid should ask, since the standard to which that professional is held will vary according to his designation. Variances in the standard will impact how he or she invests your money. If the suitability standard is operational, that broker may put his or her best interest beside or even above yours, as long as the investments are suitable. Do you really want that?

Pennsylvania & New Jersey Securities Litigation Attorneys

Name *
Name
Phone
Phone

If you or someone you know has been the victim  of investment fraud or broker misconduct, please contact our securities litigation team immediately for a free consultation toll-free at 215 462 3330 or by using our online contact form.

bestlawyers.jpeg
40u40seal.png
superlawyerslogo.png