The State of Wall Street Disputes
Back in the early 1990s, I was a law student eager to graduate, pass the bar exam and open my own firm representing investors in Wall Street Disputes. Back before the internet boom (and bust) and before global concerns about Y2K, I knew I wanted to help investors and seniors with their claims against financial advisors. Prior to law school, I had worked as a paralegal assisting in claims against brokerage firms such as Prudential Securities, Dean Witter and Smith Barney.
You see, in law school I believed in three certainties: 1) the sun rises in the east and sets in the west; 2) the San Diego Padres are the West Coast version of the Chicago Cubs; and Wall Street disputes would always be a thing. Imagine my concern when I read a law review article describing how Wall Street was going to change the way it was compensated; thereby greatly affecting the way it sold securities; and as a result, eliminating most of the customer complaints. I read this article thinking that perhaps my chosen specialty was going the way of typewriters and fax machines. But then, I noticed the date of the article — 1943!
For the past 7 years, the U.S. Congress and securities regulators have been tirelessly trying to impose a fiduciary duty on Wall Street. A fiduciary duty is best understood as “always doing what is best for the client.” However, imposing a fiduciary duty on Wall Street would greatly reduce Wall Street’s ability to earn fees and commissions. Currently, Wall Street can sell securities with higher commissions if such as sale is “suitable” for the customer. However, if Wall Street was subject to a fiduciary duty, it would be forced to sell the customer the most appropriate security at the lowest cost to the customer. A brokerage burdened with a fiduciary duty is not allowed to sell products that earn more fees for the brokerage. By following the money trail, you can see why Wall Street despises a fiduciary duty.
Will a fiduciary duty be imposed on Wall Street? History suggests no.
