New Study Compares Brokerage Firm Advertising

Posted on April 15th, 2015 at 3:32 PM
New Study Compares Brokerage Firm Advertising

From the Desk of Jim Eccleston at Eccleston Law LLC:

An investor advocacy bar association, known as PIABA (the Public Investors Arbitration Bar Association), has issued a report entitled, “Major Investor Losses Due to Conflicted Advice: Brokerage Industry Advertising Creates the Illusion of Fiduciary Duty.”  The March, 2015 report argues false advertising, and its timing is impeccable as none other than President Obama have weighed in with his views in the debate as to whether investors are entitled to fiduciary protections in their dealings with financial advisers.  Let’s examine the key findings of the PIABA Report.      

According to PIABA, “conflicted advice” causes investors to lose approximately $17 billion per year.  Among other things, the argument is that the fiduciary standard, the highest standard in the law, requiring that advisers always act in the best interests of their clients, would have spared investors from the ill-effects of the mere “suitability” standard.  That standard is the “law” today and is the standard by which investment and investment strategy recommendations are judged. 

Moreover, all of the largest firms (known as “wirehouses”) are named in the indictment – Merrill Lynch, Wells Fargo, Morgan Stanley and UBS – as well as a host of major brokerage firms – Fidelity Investments, Ameriprise, Allstate Financial, Berthel Fisher and Charles Schwab.  Specifically, those firms allegedly “advertise in a fashion that is designed to lull investors into the belief that they are being offered the services of a fiduciary.” 

The PIABA Report does a succinct job juxtaposing the advertisements of those nine firms with the actual arbitration pleadings that they have filed in private arbitration forums such as FINRA Dispute Resolution, which hears the great majority of investor-broker disputes.  No reasonable person would disagree that there are considerable differences in language, meaning and public message between the two statements (public advertisements versus private arbitration filings).  As PIABA puts it:

“On the one hand, the firms boast that they offer unconflicted, trustworthy advice while, on the other hand, those same firms argue they are little more than salesmen with a single duty: to execute trades in customers’ accounts.”

 One example is Allstate Financial.  Allstate tells the public that investors are “In Good Hands.”  Yet, in arbitration filings, Allstate takes the position that the firm owes no fiduciary duty to its customers.  Likewise, UBS tells the public that the client comes first.  But, in arbitration filings, UBS states that a broker owes no fiduciary duty to a customer in the common (“non-discretionary” account).

 The PIABA Report also focuses upon Morgan Stanley’s advertising campaign related to providing a personalized plan.  Specifically, Morgan Stanley advertises that more important than an adviser’s knowing about stocks is an adviser’s having “an intimate knowledge of you and your goals”, and a customer’s having “a more personalized plan for achieving success.”  However, in arbitration filings, Morgan Stanley takes the position that there is no fiduciary duty unless the Morgan Stanley adviser goes beyond the plan and effectively takes over the trading in a “discretionary” account.

Similarly, Merrill Lynch advertises that it puts investors’ “Needs Front and Center”, and that it seeks to build “that trusting relationship.”  The firm also tells regulators that it supports a uniform fiduciary duty.  However, in arbitration filings, Merrill Lynch takes the position that it does not stand in a fiduciary relationship with its customers. 

 Another example is Wells Fargo.  The PIABA Report discusses the firm’s advertisements, in which the firm tells investors that they should “feel that your best interests are the top priority.”  The firm also tells regulators that it supports a uniform fiduciary duty.  Nonetheless, in arbitration filings the firm maintains that it is not required to consider the investors’ interests first as there is no fiduciary duty.

 Arguably the most disparate set of positions is taken by Ameriprise Financial.  The firm tells the public that its advisers are “ethically obligated to act with your best interests at heart.”  That includes providing “personalized advice and recommendations on an ongoing basis.”  Yet, in arbitration filings, Ameriprise Financial takes the position that it owes its customers no fiduciary duty.

 As one can see, the differences between the public advertisements versus the statements made in private arbitration filings are considerable.  At a minimum, there needs to be more consistency in the advertisements and positions taken – whether or not there is to be a fiduciary standard.

The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services.

Related Attorneys: James J. Eccleston

Tags: PIABA, President Obama, FINRA, Merrill Lynch, James Eccleston, Eccleston Law

Return to Archive

TESTIMONIALS

Previous
Next

I learned two important things working with Eccleston Law. First, I made a friend and ally with Jim and Steph for life. Secondly, and this is a crucial life lesson - if you need counsel, then seek out the very best. Jim was referred to me by a most trusted source. I've never had to hire an attorney for anything. Now, I know the value of hiring an important partner. Meticulous, thorough and detailed in preparation is the best way to describe Jim. Brilliant too, I might add. Bottom line, I would highly highly recommend Jim and Stephany for your legal needs. One of the best life decisions I've ever made.

Howard S.

LATEST NEWS AND ARTICLES

May 17, 2024
Fidelity Advisor Files Lawsuit Alleging Wrongful Termination Over Whistleblowing

A former Fidelity Investments advisor, Michael Maeker, has initiated legal action against his former firm, alleging wrongful termination in response to his reporting of anti-investor sales tactics.

May 16, 2024
CFTC Investigates Banks for Potential Whistleblower Suppression

The Commodity Futures Trading Commission (CFTC) has initiated inquiries into several banks, including JPMorgan Chase, Bank of America, and Citigroup, regarding potentially hindering whistleblowers from disclosing information, as reported by Bloomberg News.

 

May 15, 2024
NFA Issues Order Against 50.ai Investments LLC

The National Futures Association's (NFA) Business Conduct Committee (BCC) has taken action against 50.ai Investments LLC, a former NFA Member commodity pool operator and forex firm, for violating multiple NFA compliance rules.