Broker Conflicts of Interest Cost Investors Billions Every Year

Does Your Broker Really Have Your Best Interest In Mind?

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A top White House aide thinks not. Jason Furman, chairman of Obama’s Council of Economic Advisors, has ruffled some serious Wall Street feathers with the release of a recent report suggesting that Americans with 401(k) retirement accounts could be losing $8 billion to $17 billion per year due to opportunistic trading by the brokers managing their accounts. That’s right  - billions.

For a few years now, the administration has been pushing for new and tighter regulations through the US Labor Department that would put an end to some of the abusive practices many brokers use to effectively redistribute investors’ retirement savings into their own pockets and coffers. These practices include:

  • Excessive trading in 401(k) accounts to boost commissions

  • Brokers receiving payments for selling certain mutual funds (and not others)

  • Low standards of alignment between the interest of investors and their brokers

Financial Advisor Conflicts of Interest

Currently, financial advisors industry-wide are held to what is called a “suitability” standard, which requires that any investment strategy or product they recommend must appropriately reflect investors’ individual risk-profiles and preferences. Unfortunately, this standard allows for too much in the way of conflicts of interest between what’s good for the investor and what’s good for the broker. The White House proposes to introduce a higher standard which demands that brokers act in accordance with a “fiduciary duty” owed to investors. This duty would ensure that broker interests and customer interest are more closely align, ending some of the more troubling instances of abuse, and hopefully saving investors billions of dollars.

Of course, financial industry titans like Morgan Stanley and Bank of America, along with their lobbyist groups, have aggressively opposed the DOL plan. They claim that the increased costs of adhering to such high standards would force them to raise fees on their customers. This is a familiar line of argument, and a disingenuous one. Effectively, what the industry is saying is that they feel entitled to those extra billions, and if they can’t get them by bilking their customers through underhanded abusive practices, they will find more “legitimate” means.

Securities Attorneys

If you or anyone you know has been the victim of abusive trading practices, broker misconduct, or investment fraud, please contact our securities attorneys for a free consultation toll-free at 1-855-462-3330 or via email by clicking here.