Securities Industry and the "Best Interest Standard" for Investors

Thanks to the efforts of the US Department of Labor, the past couple years have seen heated debate over a potential reform of the financial industry based around a single concept: investor “best interest.” For decades, broker dealers and financial advisors were only required to uphold their “fiduciary duty” toward client-investors. Fiduciary duty is legally defined as “the highest standard of care. The person who has a fiduciary duty is called the fiduciary, and the person to whom he owes the duty, is typically referred to as the principal or the beneficiary.”

Best Interest Standard for American Investors and Retirees

Evidently the financial industry was not very good at upholding this “highest standard of care,” since its profit-seeking at investors’ expense has cost American investors, especially retirees, billions and billions of dollars. This redistribution of wealth from investors to financial firms and brokers is what triggered the reform toward “best interest” lead by former President Obama and the US Department of Labor in the first place.

Securities Fiduciary Duty vs Best Interest Standard

But what is “best interest,” and how is it different from “fiduciary duty”?

It depends whom you ask.

If you ask US investors what they think best interest means in the context of investing, they will typically tell you it means that financial firms, advisors, and managers will put the investor’s best interest ahead of their own best interest every day of the week.

Not so, when you ask the financial industry, which has been oddly supportive of the reform toward best interest, as reported by The Hill in this article. According to The Hill, the securities industry sees the best interest standards as merely requiring “advisers to disclose the many reasons they are unlikely to act in customers’ best interests and to avoid the most egregiously fraudulent misconduct.”

Investors Must Protect Themselves Against Opportunistic Securities Industry

Wait, what?

If you’re surprised, you shouldn’t be. As much as the securities industry would like you to believe that they have uphold the highest standard of care or act in the best interest of their clients, they have never put investors ahead of their own profits. Never, ever. And no amount of semantics or politically shuffling will change that. So call it “fiduciary duty” or call it “best interest,” investors will still have to protect themselves against the industry that serves itself.

Pennsylvania & New Jersey Securities Law Firm

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If you or anyone you know has been the victim of investment fraud or broker misconduct, please contact our securities attorneys immediately for a free consultation at 215 462 3330 or by using our online contact form.

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