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Will the feds push for more broker accountability?

On Behalf of | Oct 1, 2021 | FINRA, Securities Litigation

Those who operate in the financial planning and wealth management sector need to follow an array of regulations. The standards that guide these professionals can vary depending on their title — making compliance even more complicated. Financial planners, for example, are generally held to a fiduciary duty when giving investment advice to clients while brokers are held to a suitability standard.

The divergence in accountability is one that goes back decades. Critics argue the distinction was relevant in the early 1900s when broker-dealers served as salesman and did not offer financial advice. This, the critics continue, is no longer the case. As a result, they are pushing for legislative reform to hold broker dealers to the same fiduciary duty present for financial advisors.

The question of how to best balance the client’s interests with the difficulties faced by financial advisors and brokers who also benefit from the sale of financial planning tools is not an uncommon one. Investor advocates have voiced concern that this type of relationship, the financial benefit that comes with the sale of financial tools while giving advice, can rise to a conflict of interest and threaten the financial planning professional’s fiduciary duty.

The Securities Exchange Commission’s (SEC) Investor Advisory Committee has agreed, stating those who give investment advice should be held to a fiduciary duty.

What does this mean for broker-dealers?

As highlighted in a recent post, the legal landscape governing the broker-dealer industry is evolving. The push towards increased transparency will likely continue, but other changes are also possible. This reality makes it even more important to conduct internal audits on a regular basis to find any potential compliance issues and resolve them before they become a bigger problem.