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Cameron Passmore CIM, FMA, FCSI

Portfolio Manager

Benjamin Felix MBA, CFA, CFP

Associate Portfolio Manager
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U.S. firms don’t put their money where their mouth is

March 26, 2015 - 0 comments

The large brokerage firms in the United States have had their blunders, most notably the 2008 financial crisis that almost crippled the world economy. These firms have massive conflicts of interest with their clients, and they put forth great effort to cover this up through advertising.

The United States, like Canada, does not hold brokers to a fiduciary standard; they are required to make suitable recommendations, but do not need to act in the best interest of their clients. This legal nuance is exploited through misleading advertisements that make it appear as if advisors are obligated to do what is best for their clients, while the firms maintain that they are not legally required to do so.

Evidence of this deceptive marketing was put on display in a recent report by Joseph C. Peiffer and Christine Lazaro for the Public Interest Arbitration Bar Association. The legal positions of these investment firms have been taken from legal documents submitted in arbitration proceedings where investors suffered major losses due to conflicted advice.

Allstate

Advertisement: “You’re In Good Hands”

Legal position: “Allstate Financial Services owed no fiduciary duty to Claimants, and, therefore, no such duty was breached.”

UBS

Advertisement: “Until my client knows she comes first. Until I understand what drives her. And what slows her down. Until I know what makes her leap out of bed in the morning. And what keeps her awake at night. Until she understands that I’m always thinking about her investment. (Even if she isn’t.) Not at the office. But at the opera. At a barbecue. In a traffic jam. Until her ambitions feel like my ambitions. Until then. We will not rest.” (Emphasis in advertisement).

Legal position: “[A] broker does not owe a fiduciary duty to his customer in a nondiscretionary account.”

Berthel Fisher

Advertisement: “We are committed to maintaining the highest standards of integrity and professionalism in our relationship with you, our client. We endeavor to know and understand your financial situation and provide you with only the highest quality information and services to help you reach your goals.”

Legal position: “Respondents deny that they owed fiduciary duties to Claimants.”

Ameriprise Financial

Advertisement: “Once you’ve identified your dreams and goals, and you and the advisor have decided to work together, you can count on sound recommendations that address your goals. You’ll be able to clearly see and discuss how the actions and decisions you make today will affect your tomorrow. You can expect to hear about the options you have and any underlying factors to consider. Our advisors are ethically obligated to act with your best interests at heart.”

Legal position: “Respondent owed no fiduciary duties to Claimants and, even if it did, no such duties were breached.”

Merrill Lynch

Advertisement: “It’s time for a financial strategy that puts your needs and priorities front and center.”

Legal position: “Respondents did not stand in a fiduciary relationship with Claimants.”

Fidelity Investments

Advertisement: “With millions relying on us for their savings or the growth of their business, we handle every action and decision with integrity and personal attention to detail. Getting things just right doesn’t mean we’re perfect, but rather setting high standards, refusing to cut corners, and believing that every product, every experience, and every outcome can always be better.”

Legal position: “Claimants first claim fails because Fidelity did not owe [the investors] any fiduciary duty.”

With their clever wording, these firms paint the rosy picture of a fiduciary standard without actually being legally bound by one. When clients suffer financial losses due to conflicted advice, the firms throw their hands in the air and say that they never claimed to be fiduciaries.

There are no Canadian examples here, but similar marketing claims can be found around the world. Without a regulated fiduciary standard in place, investors must proceed with caution.

By: Ben Felix with 0 comments.
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