The Flinchum File

Thoughtful Economic Analysis and Existential Opinions
Subscribe to the Flinchum File
View Archives

Stockbrokers Need Love Too

09/20/2016

If your stockbroker seems more worried and harassed than usual, show some kindness to him/her.  They are stewing in a witch’s brew of increased regulation and decreased understanding of their job.

One of the changes in the Dodd-Frank bill was that the SEC was charged with task of developing rules so that stockbrokers could be held to a fiduciary standard, which would require the stockbroker to always place the interests of the client above his own.  They are not required to do this currently and can still put their clients into whatever mutual funds “kicks-back” the most commission to the stockbroker.

The Republicans were opposed to this bill and, since passage, have “starved” the SEC with no budget increases and no confirmations for the vacancies on the Board.  The result is that the now-highly-politicized SEC failed to develop the needed rules.  So, into the vacuum rode the Department of Labor (DOL) with their own definition of the fiduciary standard and rules to comply with it.  Of course, it only applied to ERISA accounts, including IRA rollovers.

Stockbrokers now had two governmental agencies looking over their shoulder (ignoring the intolerant self-regulatory organization known as FINRA).  The SEC’s hot button is full disclosure, where it is okay to steal from your clients, as long as it is fully disclosed.  The DOL’s hot button is conflicts of interests.  It is not enough to disclose conflicts of interest.  They must be eliminated.

Not the least of all the problems, who will audit for compliance?  The SEC has an audit staff, as well as the state regulators, but not DOL.  So, who is going to audit for DOL compliance?  Are you confused yet?  So is your stockbroker!

If you chose to use a registered-investment-advisor (RIA) instead of a stockbroker, you made a good decision.  However, if your RIA is blissfully smug that all this change will not affect his relationship with you, then he/she does not understand it.  Ask for an explanation.

We are a fee-only advisor providing best interest fiduciary services to clients
in Chesapeake, Newport News, Norfolk, Suffolk, Virginia Beach, Williamsburg, and the surrounding areas of Hampton Roads.

CONTACT BAY CAPITAL ADVISORSWe Will Respond Promptly

Contact Us Bottom