DennisBeaverDecember 25, 2010 (Original publish date) • By Dennis Beaver

Today’s article is in response to an inquiry from readers who believe their parents have been the victim of either a crooked or incompetent stockbroker. In either case, we are likely going to upset a number of people, and some of them are called stockbrokers.

Others have an alphabet soup of letters after their names, such as CFA, CFP, CRF, CEA, RFC, RFA – and the list includes over 200 investment advisor and financial planner designations. But who are they, and what do they really know about money management? More importantly, can we trust them to watch out for what’s best for us?

Our story was made possible with the help of Philadelphia attorney Nick Guilliano, who specializes in securities and investment fraud, and Central California-based Stockbroker X, with close to 20 years of experience working for one of the nation’s largest investment houses.

“We intimidate our customers”

“From the moment you step into our offices, you see nicely dressed people who look like they have just stepped out of GQ or Vogue magazines. We get clothing allowances, classes in looking successful and, more importantly, how to intimidate, how to make you feel that we know better. We create false assumptions with fancy titles and awards, which often turn out to be horribly expensive for our customers,” Stockbroker X told me, after I showed him the e-mail from readers who live near Oakhurst, Calif.:

“Our parents are both in their late 70’s, and live off of Social Security and savings. They own a couple of small rental houses and live very normal lives. They were never in the stock market, but always had bank CDs, which they renew and shop for the best rates.

“Recently they received a phone call from a wealth advisor at a bank where they have an $85,000 CD. He invited them in to discuss ways of getting a higher return.

“They were sold an insurance annuity, and some investment funds which had substantial fees and commissions, none of which was revealed. They clearly do not need any of those things.

“We found out this ‘wealth advisor’ is 23, fresh out of college and has virtually no real-world investment experience. He recently passed the test to become a stockbroker, and took some Internet-based classes to obtain his wealth advisor title. When customers’ CDs are about to mature, he is given their names, invites them in and tries to switch them to investments which generate a commission for himself and the bank.

“We were under the impression that a stockbroker or investment advisor is a professional and legally obligated to act in the client’s best interests, not to just make a sale and earn a commission. Are we correct in this belief?” my readers asked.

Are you a fiduciary?

“When we are talking about financial advisors and stockbrokers, there are three legal terms which are so important to understand: fiduciary, fiduciary obligation and fiduciary relationship,” attorney Guilliano points out.

‘Simply stated, a fiduciary must act with the best interests of the client in mind – regardless of their level of compensation. It is the highest standard of care, requiring trust, confidence and loyalty. In the world of investments and money, a fiduciary is committed to putting your financial interests ahead of his own,” he stresses.

My stockbroker source warns that his industry does everything possible to create an illusion that they are fiduciaries. “We make a lot of money off of our customer’s ignorance, and there is no nice way of saying that,” he adds.

“The public has a poor understanding of the duties and obligations of the people in the financial world. Most of our customers have never heard of the term ‘fiduciary,’ but creative advertising makes them believe that’s what we are, watching out for their interests. But it is not true. Do not believe it. What’s good for you – a low commission investment – is bad for me.

“It is critical to understand that a stockbroker has no fiduciary obligation to the customer. We are salespeople. You are a customer, not a client, but we like to use the term ‘client’ to make it appear that we really care about you. We care only so long as we can make a commission. Unless asked, stockbrokers do not have to disclose the amount of their commissions. We will often recommend investments which generate the highest commission, and that means more money coming out of your pocket, and it’s completely legal,” he told me during our interview.

Next time: Why does my stockbroker not call and tell me to sell? Why is it that the only time I hear from him is when he wants to sell me something? Who can I trust?


Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.



If you liked this article,
you may be interested in these...

Share Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInEmail this to someone