Notes

A recent article in Investor's Business Daily (IBD) suggested that regulators should not allow brokers to practice "fiduciary" duties when it comes to transactions with customers. In this world, where we have increasingly complex corporate structures, relationships between investors and brokers have also become more complex. In addition to the increased awareness of both the importance and the need for business relationships, there has also been the growth of commercial finance options, such as private equity and venture capital. Because these firms are often backed by sophisticated technology, there is also a need for heightened communication among business owners and investors. With all of the benefits that come with these financing opportunities, there is also a significant responsibility that comes with such relationships. As such, an increasing number of lawyers specializing in financial fraud are being employed by firms that provide commercial finance and other types of brokerage services.
The phrase "fiduciary duty" refers to a standard of conduct that is intended to protect investment activities. Generally, this includes a requirement that brokers engage in practices that are in accordance with the law. In addition, these regulations require that brokers inform their clients of the conflicts that may arise between them and their business partners. This is not only to ensure that clients are appropriately informed regarding the investment options available to them, but also to avoid investors from taking actions that could potentially place their business in jeopardy or worse, even putting them out of business. Brokers are also required to engage in proper conflict-management strategies to mitigate the potential impact of any negative actions or decisions that they make in the course of advising their clients.

In light of the wide variety of services provided by attorneys and regulatory agencies to protect investors, it is no wonder that many organizations feel little pressure to adhere to these stringent standards. Unfortunately, this can have a serious negative impact on the marketplace. For RIA compliance consultant, FINRA u4 expungement, breach of fiduciary duty, financial fraud lawyer, investment lawyer , when an investor takes advice from a broker based on this lack of regulatory compliance, he or she may choose to take other measures to ensure the protection of their financial interests. As a result, they may take their business elsewhere or make their investments more expensive in an effort to retain their legal and regulatory protection.

One obvious area in which this can occur is in the investment industry. One of the first brokerage firms to employ modern fiduciary principles was Price Waterhouse Co. (PWFC), whose founder, John Pierrakos, took great pains to ensure that his firm adhered to strict fiduciary laws. In his writings, he emphasized that those who were being represented had a "duty to protect their investments," and, "A lawyer who fails to enforce this duty is a shoddy attorney." He went on to state, "A client should expect that his broker's fiduciary obligations will be enforced." This philosophy has been followed ever since, and the relatively few instances in which brokers have violated their own rules have been quickly corrected.

Another area in which a brokerage firm may have a rule of law that conflicts with clients' interests is in the handling of their confidential information. Most people, when dealing with a broker, are very careful to avoid revealing too much sensitive business information, especially when it comes to investment strategies. However, in order for brokers to provide the most valuable products to their clients, they often need to maintain secrecy. As a result, the mere act of maintaining confidentiality can put some investors at a disadvantage when it comes to making investment decisions. A recent case illustrates this point. A Texas retirement planning company repeatedly withheld information about the dangers of an index futures deal until a September market crash effectively destroyed the financial safety of hundreds of thousands of clients.

Regardless of the rule of law or the general attitude of a brokerage firm, a few firms have demonstrated a willingness to break the rules. In one case, the company failed to pay a commission to an investment adviser who was improperly steering clients into an investment product that caused them great financial harm. In another case, a New York investment lawyer was fired after he disclosed inside information to a client about how the firm set up a preferred stock plan despite its negative impact on the firm's own investment strategy.
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