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What Firms Claim About Their Brokers’ Fiduciary Duty (and Lack Thereof)

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In response to my May 20 blog, Clients Deserve a Clear Choice Between Sales and Advice, Frank P., CLU, ChFC, commented in part:

“I agree entirely with the author’s premise that clients need to be told upfront whether they will be sold a financial product for which the broker or agent will be paid a commission from a mutual fund family or from a life insurance company, OR whether they will be getting objective financial advice for a fee. This distinction is ALREADY clear to all except clients who live under a rock.” 

I have to admit to being pleasantly surprised: the idea that most brokerage clients are well aware of the distinction between fiduciary advice and securities sales is one that I hadn’t heard the securities industry raise before. While, as numerous studies over the past 20 years have clearly shown, it falls among the pantheon of baseless industry rationalizations for why being legally required to put their clients’ interests first is a bad idea, (reduced access to advice, business model neutrality, increased costs, etc.), I haven’t seen this particular claim addressed recently.

However, after a bit of Google research I was able to find something even better: A March 25, 2015 report by: Joseph C. Peiffer and Christine Lazaro of the Public Investors Arbitration Bar Association titled: Major Investor Losses Due to Conflicted Advice: Brokerage Industry Advertising Creates the Illusion of a Fiduciary Duty.

As the title suggests, Peiffer and Lazaro offer a stable of examples showing just why investors might be confused about the actual responsibilities of brokers. Here are some of the highlights of their comparisons of brokerage advertising (websites were visited in February 2015; the paper was published in March 2015) to their claims in response to client complaints:

1) Ameriprise Financial. Here’s what the authors found on the Ameriprise website, under Our Advisors: What to expect from an Ameriprise financial advisor“Once you’ve identified your dreams and goals, and you and the advisor have decided to work together, you can count on sound recommendations that address your goals… …Our advisors are ethically obligated to act with your best interests at heart.”

However, as the authors write, “Despite its advertising campaign promising to put client interests first and even publicly supporting and acknowledging a belief that a fiduciary duty is required, Ameriprise has nevertheless argued in arbitration it owes no such duty.” As an attached FINRA arbitration case showed, Ameriprise argued: “Respondent owed no fiduciary duties to Claimants….” 

2) Merrill Lynch. Here’s what Merrill’s website tells investors, under Working with Us, From a Conversation to a Relationship: Our Approach: “It’s time for a financial strategy that puts your needs and priorities front and center.”

So what’s Merrill’s story when they get to arbitration? Peiffer and Lazaro report: “Despite marketing that clients’ interest would be ‘front and center’ and a desire to ‘build a trusting relationship’ as well as publicly supporting the imposition of a fiduciary duty, Merrill Lynch has refused to acknowledge it owes a fiduciary duty in arbitration when it breaches that duty to investors.

In one case, Merrill argued and won that ‘…in a non-discretionary securities account, there is no ongoing duty of reasonable care that requires a brokerage firm to give advice or monitor information beyond the limited transaction-by-transaction duties that are implicated in executing its customer’s instructions.’” 

3) UBS. “Until my client knows she comes first. Until I understand what drives her. And what slows her down. Until I know what makes her leap out of bed in the morning. And what keeps her awake at night. Until she understands that I’m always thinking about her investment. (Even if she isn’t.) Not at the office. But at the opera. At a barbecue. In a traffic jam. Until her ambitions feel like my ambitions. Until then. We will not rest. UBS,” from the UBS advertising campaign “We Will Not Rest” (emphasis in advertisement).

But once again, when it gets into arbitration, UBS’ story is a bit different: “Like many other firms, UBS ignores the representations in its advertising when it is forced to defend its actions,” wrote the authors, “stating in one case: ‘[A] broker does not owe a fiduciary duty to his customer in a non- discretionary account.’” 

4) Wells Fargo. “A healthy relationship with your Financial Advisor should make you feel that your best interests are the top priority, no matter what is happening in the market and no matter the size of your portfolio,” the Wells Fargo Advisors website, Working With a Financial Advisor, How to Evaluate a Financial Advisor, tells clients and would-be clients.

But when it comes to stepping up in client relationships, Wells, too, blinks: “…in private arbitrations, Wells Fargo has refused to acknowledge owing a fiduciary duty,’” says the report. “[In one arbitration case] Wells Fargo wrote: ‘The law establishes that a broker does not owe a fiduciary duty to a customer with respect to a non-discretionary account.’” [From a Wells Fargo & Co. Letter to the SEC dated August 30, 2010.

Peiffer and Lazaro conclude: “Brokerage firms advertise that they put customers’ interests first, offer personalized advice and do all of this on an ongoing basis. In other words, they advertise that they are a fiduciary such as a doctor or lawyer. But when a dispute arises with investors, brokerage firms consistently argue they have the duties of a used car salesman.”

Strong stuff, yes, but seemingly deserved.

Is it really any wonder why even clients who don’t live under rocks are confused about their relationships with their brokers? How can it be unreasonable to require brokers to live up to a real fiduciary standard, or at least stop claiming that they already do?


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