SEC Survey on Obligations of Broker-Dealers and Investment Advisers to Retail Customers (with Lofchie Comment)

The SEC published a request for assistance in determining whether to make new rules for broker-dealers and investment advisers when they provide personalized investment advice about securities to retail customer.

Among the specific topics as to which the SEC has requested information are the following:

1. Types of retail customers who use broker-dealers for advice vs. those who use investment advisers.
2. Types of services and information and types of service providers available to retail customers.
3. Costs of providing services to retail customers, particularly personalized services.
4. Information regarding principal transactions with customers and other conflicts of interests with customers.
5. Profitability of doing business with retail customers.
6. Ability of customers to sue a broker-dealer or investment adviser.
7. Information as to disclosures provided to customers.

Lofchie Comment: The questions the SEC asked in the survey seem fair, genuinely intended to elicit as much information as possible on an important issue (as opposed to questions directed towards a simplistic finding that broker-dealers should have a fiduciary duty any time that they make a recommendation to a customer). The really important question is not so much whether broker-dealers should owe a fiduciary duty to customers, but rather what services can be made reasonably available to retail customers in a way that those customers understand the level of service being provided. If we end up with a legal standard where it is effectively illegal to provide any advice to a retail customer other than as part of a full-blown, full service investment advisory relationship, then many customers will simply be priced out of obtaining any personalized service. (Perhaps that is a good result, if one believes that the advice that customers receive is inherently and systematically flawed. However, the regulators should not pretend that the level of attention available to a customer with a $50,000 portfolio can be made the same - by operation of law - as that available to a customer with a $10 million portfolio.)

View Press Release in full here (links externally to SEC website).View: SEC Request for Data on the Duties of Broker-Dealers and Investment AdvisersSee also: Investor and Industry Perspective on Broker-Dealers and Investment Advisers (2006)See generally: Lofchie's Guide To Broker-Dealer Regulation, Customers Chapter