By: Jack WaymirecloseAuthor: Jack Waymire Name: Jack Waymire
Email: jack@paladinregistry.com
Site: http://paladinregistry.com
About: Jack writes for the InvestorWatchdog website and Worth magazine. He worked in the financial services industry from 1976 to 2004. For twenty of those years he was the president of a Registered Investment Advisory firm and a Broker/Dealer. Jack is the author of Who's Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor and is a co-founder of PaladinRegistry.com.See Authors Posts (87) | July 29, 2009 | Deceptive Sales Practices

Wall Street executives were shocked to learn the Securities Industry and Financial Markets Association recently endorsed the Obama administration’s efforts to create a fiduciary standard for brokers and others who sell investment products. 

The financial services industry has long contended that stockbrokers are really sales representatives. They are paid commissions to sell products and any advice they give is incidental to the sales process. This is spin at a very high level. Stockbrokers give advice every day, but they call it recommendations. They don’t sell mutual funds, they recommend funds. I have never met one investor who could tell me the difference between advice (invest in this fund) and recommendations (invest in this fund).

To add to the confusion, most representatives no longer call themselves stockbrokers. This title, like insurance agent, created sales resistance so they  selected more acceptable titles, for example, some brokers call  themselves financial planners or financial consultants. What do planners and consultants do? They give advice.

Wall Street wants to be held to a lower legal standard for its sales recommendations called suitability. Stockbrokers are supposed to make "suitable" recommendations based on clients’ situations, risk tolerances, and investment goals. Suitable is a deliberately vague word that varies by client and is tough to enforce.

On the other hand, a fiduciary standard is much more explicit: Investor interests must always come first. This higher standard creates additional liability for financial services companies that employ or license thousands of stockbrokers.

Now you know why Wall Street companies are fighting this change – it benefits you and not them. They do not want to be liable for the quality of their "recommendations" or the other conflicts of interest that permeate the industry.