Regulating Securities Professionals: Emotional and Moral Aspects of Fiduciary Investing

Abstract:     
Individuals invest in securities markets via such financial intermediaries as brokers and dealers. Federal securities laws regulate the behavior of securities professionals towards their customers. The relationship between investors and securities professionals is an example of a principal-agent relationship. Such relationships suffer from well-known incentive and informational problems. This Article focuses on some novel emotional and psychological consequences of such relationships for investment decisions. This Article considers how expectations about securities investment behavior can interact with guilt on the part of securities professionals from breaching their clients' trust. This Article explains how imposing a fiduciary duty of loyalty can alter expectations about investment behavior, emotions that depend on those investment expectations, and investment behavior itself. This Article also discusses the applicability of such models to other fiduciary relationships.

Note: Previously titled "Emotions in Fiduciary Organizations and Regulating Securities Professionals"

Number of Pages in PDF File: 49

working papers series