Piling On Goldman While Obscuring the Big Truth

Goldman traders, like brokers not registered with the SEC, are supposed to look out for themselves and put the interests of their firms first. This is their duty. This is what they do. However, what they are permitted to say is another matter again.

Like industry peers, Goldman is permitted to say that its brokers or traders are trusted advisors and dedicated to their clients’ best interests. Are clients who hear and see these claims repeated incessantly, “Muppets”? Are Goldman customers “Muppets” because they believe the plain meaning of the plain language of their trader or broker?  By his reckoning Smith did not resign because he believed Goldman broke the law; he resigned because he believed Goldman broke its word. Regularly. For instance, Goldman’s promise to clients that their interests “always come first,” and to employees, that “integrity and honesty are at the heart of our business.” 

Brokers and traders meeting the “fair dealing” standard, among other things, are not required to act in their client’s best interest or in a prudent manner, disclose all conflicts, either avoid conflicts or disclose and manage the conflicts such that the investors’ best interests are still served, disclose all fees and expenses and control investment expenses. In sharp contrast, fiduciaries have legal obligations of loyalty, due care and good faith and are required to fulfill these duties. 

If Smith says correctly that Goldman has broken no laws, from a regulatory perspective he is saying that Goldman traders meet the minimum requirements of the low fair dealing standard that explicitly permits firms to put their interests ahead of investors’. The bad behavior is not that Goldman traders put their own interests first. The bad behavior is that Goldman and other firms put their own interests first and at the same time regularly and clearly say or suggest otherwise— that they put investors’ interests first. This is a violation of trust, not a violation of regulations.  

Yes, Americans like seeing the large and powerful getting a comeuppance for behaving badly.

Piling on Goldman for being brash and arrogant may be understandable. That does not make it useful or important. Better yet, reminding all investors seeking investment advice of the huge difference between the requirements of sales brokers and fiduciaries would be both useful and important, as would urging the SEC and Department of Labor to proceed making fiduciary rules that provide equal protection under the law so retail investors no longer have to face sales brokers who are permitted to do one thing, yet say something very different.