By Arthur D. Postal
WASHINGTON – “Conflicted advice” has cost consumers $80 billion in the five years since the Dodd-Frank Act passed, according to a trial lawyers’ association.
Inaction by the Securities and Exchange Commission (SEC) on a fiduciary standard has cost American investors $17 billion per year, according to the report by the Public Investors Arbitration Bar Association (PIABA), Norman, Okla.
The report mirrored comments made repeatedly by Thomas E. Perez, secretary of the Department of Labor, that investment advisors should be held to the same standard of care in doing their job as lawyers and doctors.
In the absence of a uniform fiduciary standard, brokerage firms now engage in advertising that is “clearly calculated to leave the false impression with investors that stockbrokers take the same fiduciary care as a doctor or a lawyer,” the report said.
However, the report said, “while brokerage firms advertise as though they are trusted guardians of their clients’ best interests, they arbitrate any resulting disputes as though they are used car salesmen.”
PIABAA is an educational and networking organization for securities arbitration attorneys who represent the public investor in securities disputes.
The report said that a review by the PIABA of the advertising and arbitration stances of nine major brokerage firms – Merrill Lynch, Fidelity Investments, Ameriprise, Wells Fargo, Morgan Stanley, Allstate Financial, UBS, Berthel Fisher, and Charles Schwab – found that all nine “advertise in a fashion that is designed to lull investors into the belief that they are being offered the services of a fiduciary.”
For example, the report said that Merrill Lynch advertises as follows: “It’s time for a financial strategy that puts your needs and priorities front and center.”
Fidelity Investments, the report said, appeals to investors with these words: “Acting in good faith and taking pride in getting things just right. The personal commitment each of us makes to go the extra mile for our customers and put their interests before our own is a big part of what has always made Fidelity a special place to work and do business.”
Despite these ad claims, the report said, all nine brokerage firms using the fiduciary-like appeals in their ads “eschew “any such responsibility when it comes to battling investor claims in arbitration.
Adding to the confusion is the fact that five of the eight brokerage firms – Ameriprise, Merrill Lynch, Fidelity, Wells Fargo, and Charles Schwab – have publicly stated that they support a fiduciary standard.
“But these firms are every bit as vociferous as the other four brokerages in denying that they have any fiduciary obligation when push comes to shove in an arbitration case filed by investors who have lost some or all of their nest egg due to conflicted advice,” the report said.
The DOL is far further along with its work on crafting an updated standard of care for advisers selling investment products into retirement plans.
Just last week, SEC chairman Mary Jo White said she is “just one vote” out of five on the SEC on a possible uniform standard. However, the two other Democrats on the panel are likely to support her, while the two Republicans are said to be opposed.
At a meeting Thursday at the Chamber of Commerce in Washington, Perez said that said the DOL is working to get the proposal published “as soon as possible, so we can transition from this round of informal feedback with you to another round where we can get your comments.
“We look forward to it,” he said.
Industry officials expect that the Office of Management and Budget, which is looking at the proposal at this time, will likely clear it for publication for comment sometime in June.
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at email@example.com.
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