The history of the Securities and Exchange Commission’s (SEC) involvement in the issue of investment advice has been characterized by the SEC's willingness to tie itself into knots to preserve the broker-dealer business model at the expense of investor protection. Toward that end, the SEC has turned a blind eye to clearly misleading practices, bent the rules regarding application of the Advisers Act to brokerage activities, and mischaracterized the record, all to avoid holding broker-dealers to the fiduciary standard appropriate to the advisory role they claim in their marketing materials to fulfill. Investors who were misled into relying on self-interested sales recommendations as trustworthy advice have suffered untold harm. The SEC now has an opportunity to rescue this failed policy and to develop the rational, pro-investor policy for the regulation of financial professionals that we and others have sought for close to two decades. To achieve that goal, however, the SEC will need to ignore self-interested arguments of industry groups intent on maintaining a status quo that is very profitable for them, and act instead to benefit the average, financially unsophisticated investors who turn to financial professionals for advice.

Download PDF