Recent news about a class action lawsuit and separate FINRA arbitration case against independent broker dealer (B/D) Securities America for selling a certain Reg D security from Provident Royalties and Medical Capital Holdings raises a related question: “should you be able to sue your broker?”
Read this before you answer!!
Registered Representatives (RRs) of Broker Dealers (B/Ds) exist in a split standard where they are representatives of a B/D paying them to sell products that are “suitable” for the consumer. The implication is “buyer- beware”; while the representative is required to sell a “suitable” product, it also leaves the door open to the possibility that a BETTER solution also exists. However, it’s YOUR responsibility and not the RR to reveal the alternative. This is the agreement the consumer enters with the B/D through its RRs.
On the other hand, Registered Investment Advisory firms and Investment Advisor Representatives are legally and ethically bound to put your interest above their own. This is called the “fiduciary standard of care”. You’re paying for this with hourly fees and/or a small percentage of the total value of assets they manage for you.
So how do know you’re getting the best advice or recommendation from your advisor? Start by finding an advisor who’ll put in writing their commitment or covenant to your interest above their own!
And here’s the challenge: I don’t know a B/D in existence that allows its representatives (RR’s) to do this. Registered Investment Advisors or Investment Advisor Representatives WILL put in writing their covenant and commitment to give you the best advice possible. This is the “fiduciary standard of care” you’re entitled to.
While there are still MANY registered representatives that care deeply for their clients, the B/D giving them a paycheck calls the shots and will NOT allow a written covenant like this to exist.
While my heart goes out to the individuals that bought inferior product or took bad advice from Securities America representatives, I don’t believe they should be able to sue them because of the difference between the “fiduciary and suitability standard”. The consumer entered into the relationship and the B/D had the client sign an acknowledgement of this relationship when they transacted the sale of product.
A question for another discussion is this: “Is Securities America the first B/D to be made an example of by financial regulation reform?”
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