In July of 2010, Congress asked the SEC to consider imposing on brokers who give investment advice to retail clients a “fiduciary duty” standard, which would require them to put their clients’ best interests first in handling customer accounts. Under the current system, broker-dealers contend that they are only required to make “suitable” investment recommendations. However, this contention ignores the reality of how modern day full-service brokerage firms operate, and the fact that the retail broker-customer relationship is advisory in nature. The SEC is still debating whether to present options or make recommendations to Congress, however it is set to release their study concerning this “fiduciary standard” later today. The SEC has been authorized by Congress to issue rules on the broker standard if the study suggests that changes are necessary.
According to Lawrence L. Klayman of Klayman & Toskes, “We hope the SEC finds that brokers should be held to a fiduciary standard, and creates new rules to enforce that standard. This would codify what is truly reflective of today’s brokerage environment and what the securities industry has evolved into over the last 20 years.” In fact, a major Wall Street broker-dealer has been quoted as saying, “when we act as a full-service broker-dealer, we do not simply take customers’ orders and execute securities transactions for them. Most of our customers seek out advice on how to invest their brokerage assets, and, to the best of our ability, we endeavor to provide sound advice on this and related aspects of their financial needs….This ongoing advice and assistance to our brokerage customers is an integral part of our full-service brokerage service…” Lawrence L. Klayman added, “The suitability rule is actually an antiquated rule. To hold brokers merely to that standard does not accurately reflect the business model in the securities industry today nor does it take into account the relationship of trust and confidence that often exists between the customer and broker. At the beginning of the relationship, broker-dealers promote themselves as being trusted advisors. However, when the relationship sours and litigation ensues, these broker-dealers defend the cases by stating that they owe no fiduciary duties to the customer. Moreover, they wrongfully defend themselves by arguing that their only duty is to execute trades and make ‘suitable’ recommendations. A codification of a fiduciary duty on retail brokers will close this loophole, and stop brokers from trying to avoid liability when they mismanage customer accounts by arguing they had no fiduciary duty. With a fiduciary standard set in stone, brokers will no longer be allowed to use the suitability rule as a shield to defend themselves, and retail clients will have an easier time proving liability in arbitration.”
Comments made by SEC personnel last year indicate that the SEC will recommend that brokers should be held to a fiduciary standard. In a speech last May, SEC Commissioner Luis Aguilar said, “If you are giving advice to an investor, regardless of the title on the business card, you should always be bound to do so in the best interests of the client,” Similarly, SEC Chairperson Mary Shapiro said in May that brokers “should meet that same high fiduciary standard.”
The attorneys at Klayman & Toskes are dedicated to pursuing claims on behalf of investors who have suffered investment losses. Klayman & Toskes, an experienced, qualified, and nationally recognized securities litigation law firm, practices exclusively in the field of securities arbitration and litigation. It continues its representation of investors throughout the world in securities arbitration and litigation matters against major Wall Street brokerage firms.