by Tamar Frankel

Historically securities brokers have been viewed as salespeople with special legal responsibilities:  Treat customers fairly, follow special rules regarding the customers’ money and securities, and recommend to customers only suitable investments.  Brokers offered liquidity by creating markets in certain securities, actions also subject to special rules designed to ensure customers were treated fairly.

Through the years, broker dealers also began to offer investment advice and financial planning.  They not only collected commissions, as do pure-play brokers, but sometimes charged a percentage of the clients’ assets, as do advisers.  Thus, small and large brokerage firms and banks, which have entered the fray, offer four types of services: Brokerage, dealership, advice, and financial planning.

While these four functions are differently regulated, the customers — and many of the broker-dealers-advisers-financial planners themselves -– don’t know the difference. Legally, broker dealers are not subject to fiduciary duties; advisers and planners are.  The difference between broker dealer regulation and fiduciary law is fundamental.  Broker dealers can act for their own benefit, but must do so fairly.  Advisers and financial planners must provide service solely for the benefit of their clients.

For the full story go to Reuters The Great Debate

– Tamar Frankel, an authority on securities law, is a professor at Boston University School of Law and author of “Trust and Honesty: America’s Business Culture at a Crossroad.” The opinions expressed are her own. –

---

"Investor Education for Main Street America"