Major Investor Losses Due to Conflicted Advice: Brokerage Industry Advertising Creates the Illusion of a Fiduciary Duty

Public Investors Arbitration Bar Association Report, Vol. 22, No. 1, 2015

St. John's Legal Studies Research Paper No. 17-0012

22 Pages Posted: 8 Dec 2017 Last revised: 10 Dec 2017

See all articles by Christine Lazaro

Christine Lazaro

St. John's University - School of Law

Joseph C. Peiffer

St. John's University

Date Written: March 25, 2015

Abstract

No uniform national standard exists today requiring brokerage firms to put their clients’ interests first by avoiding making profits from conflicted advice. Since the passage of the Dodd Frank Act, inaction by the Securities and Exchange Commission (SEC) on a fiduciary standard has cost American investors nearly $80 billion, based on estimated losses of $17 billion per year.

There is a compelling case to be made for a ban on conflicted advice in order to protect investors. In the absence of such a standard, brokerage firms now engage in advertising that is clearly calculated to leave the false impression with investors that stockbrokers are fiduciaries. But, while brokerage firms advertise as though they are trusted guardians of their clients’ best interests, they deny any such duty exists when they arbitrate any resulting disputes.

The Public Investors Arbitration Bar Association (PIABA) reviewed the advertising and arbitration stances of nine major brokerage firms – Merrill Lynch, Fidelity Investments, Ameriprise, Wells Fargo, Morgan Stanley, Allstate Financial, UBS, Berthel Fisher, and Charles Schwab. This paper describes the findings of the review. The paper concludes that all nine firms advertise in a fashion that is designed to lull investors into the belief that they are being offered the services of a fiduciary. For example, Merrill Lynch advertises as follows: “It’s time for a financial strategy that puts your needs and priorities front and center.” Fidelity Investments appeals to investors with these words: “Acting in good faith and taking pride in getting things just right. The personal commitment each of us makes to go the extra mile for our customers and put their interests before our own is a big part of what has always made Fidelity a special place to work and do business.”

Nonetheless, all nine brokerage firms using the fiduciary-like appeals in their ads eschew any such responsibility when it comes to battling investor claims in arbitration. Adding to the confusion is the fact that five of the eight brokerage firms – Ameriprise, Merrill Lynch, Fidelity, Wells Fargo, and Charles Schwab – have publicly stated that they support a fiduciary standard. But these firms are every bit as vociferous as the other four brokerages in denying that they have any fiduciary obligation in arbitration cases filed by investors who have lost some or all of their nest egg due to conflicted advice.

Suggested Citation

Lazaro, Christine and Peiffer, Joseph, Major Investor Losses Due to Conflicted Advice: Brokerage Industry Advertising Creates the Illusion of a Fiduciary Duty (March 25, 2015). Public Investors Arbitration Bar Association Report, Vol. 22, No. 1, 2015; St. John's Legal Studies Research Paper No. 17-0012. Available at SSRN: https://ssrn.com/abstract=3084113

Christine Lazaro (Contact Author)

St. John's University - School of Law ( email )

8000 Utopia Parkway
Jamaica, NY 11439
United States

Joseph Peiffer

St. John's University ( email )

8000 Utopia Parkway
Queens, NY 11439
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
16
Abstract Views
600
PlumX Metrics