The Broker vs Advisor Debate Goes Mainstream

The New York Observer’s Patrick Clark has an article out today on the Suitability vs Fiduciary (or Broker vs Advisor) debate that’s been raging in the investment profession for years now.

Main Street is starting to take an interest in this decidedly Wall Street topic as they should – after all, nowhere is this standard of care issue more relevant than in the accounts of the clients themselves.

I have a quote in the piece, along with some context, below – and they didn’t edit me 🙂 …

As the financial products became more complex, incentives were harder to discern. Mutual funds, for instance, offered varying fee structures, allowing investors to decide how they wished to pay for the product: With an up-front sales charge that took an initial bite out of the principal, or with ongoing fees. An investment adviser registered with the SEC was required to recommend the product in a client’s best interest. A broker-dealer, on the other hand, could offer a client either one.

“If the branch manager tells you one product gets you 3 percent commission and that one gets you 7 percent, it’s the nature of human beings and capitalism and life that you’re going to sell that one,” Josh Brown, author of the blog The Reformed Broker and the book Backstage Wall Street, told The Observer. “There’s nothing illegal about it. As long as the product is suitable for the client, it can be done.”

Mutual funds, Mr. Brown said, are a tame example: “Principal protection funds, high-fee annuities. Private REITs, fucked IPOs, secondary offerings. There’s a litany of shit that you won’t find a fiduciary adviser selling.”

Make sure to click over and read the whole thing, this is important stuff.


Broken Brokerages: Finance Luminaries Join Fight Over Uniform Fiduciary Standard (NYO)

And read my book to really learn what goes on behind the scenes:

Backstage Wall Street on Amazon