Wednesday, October 7, 2009

Taking the Investor's Side

To follow up on yesterday's post, there is a bill called the Investor Protection Act that has been floating around Congress since this summer that would also tighten up the fiduciary responsibilities of financial professionals. One provision would require broker/dealers to live up to the same fiduciary standards that financial advisers are already required to adhere to.

Fiduciary simply means that that a person is ultimately obligated to act in their client's behalf. That's what a wealth manager such as myself has been doing along, but it would be a new role for brokers, who may have your interests at heart but also require a considerable amount of stock sales to make their living.

Other provisions in the IPA are designed to prevent another Madoff-type scandal, by increasing the number of people investigating potential frauds and rewarding whistleblowers who help the SEC catch such people. It would also bar the inclusion of mandatory arbitration clauses in securities contracts; as it stands now, most people who feel they've been wrong by a brokerage have to take their case to an arbitrator rather than having the right to sue. We'll keep you posted on the progress of this bill.

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