{"id":3342,"date":"2014-03-13T06:56:09","date_gmt":"2014-03-13T13:56:09","guid":{"rendered":"http:\/\/staging-prblog.paladinregistry.com\/blog\/?p=3342"},"modified":"2014-03-13T06:56:09","modified_gmt":"2014-03-13T13:56:09","slug":"secs-revolving-door-impact-investor-protection","status":"publish","type":"post","link":"https:\/\/www.paladinregistry.com\/blog\/advisors\/secs-revolving-door-impact-investor-protection\/","title":{"rendered":"Does the SEC’s “Revolving Door” Impact Investor Protection?"},"content":{"rendered":"

\"SEC<\/a>Securities law is a very specialized type of law. As a result, regulatory bodies such as the Securities and Exchange Commission (SEC)<\/a> recruit securities lawyers in law firms to join the SEC. Many lawyers that join\u00a0do so with the intent of gaining\u00a0experience and leveraging their time at the SEC into a higher paying position with a Wall Street law firm.<\/p>\n

While there is nothing inherently wrong with the practice, it leads to the question of whether the\u00a0“revolving door” strategy potentially \u00a0impacts\u00a0investor protection, as attorneys avoid upsetting potential\u00a0future employers. This question becomes significant in light of the SEC’s ongoing hesitancy to address and decide the issue of a universal fiduciary standard.<\/p>\n

Fiduciaries are required to always act in the best interests of a\u00a0client<\/a>. Investment advisers are\u00a0held to\u00a0said fiduciary standard. Stockbrokers and other financial advisors are arguably held to a much lower standard, a so-called suitability standard<\/a>, which allows them to put their own financial self-interests ahead of their customers.<\/p>\n

The Dodd-Franks\u00a0Act allows Congress and the SEC to address this obvious inequity. Yet both continue to drag their feet and present disingenuous arguments as to why a universal fiduciary standard would not\u00a0be good for the public. My guess is that if you were to poll people on the street and ask them – “Should financial advisors be allowed to put their\u00a0financial self-interests\u00a0ahead of their customer’s financial self-interests?” – The answer would be a resounding “no!” Pure common sense tells you as much.<\/p>\n

And yet,\u00a0the continuing\u00a0lack of action by both the SEC and\u00a0Congress\u00a0bring to mind the popular refrain from the\u00a0play “1776,” “piddle, twiddle and resolve, not a damned thing\u00a0do we solve.” The question, still unanswered by both the SEC and Congress, is simple – “What is so onerous or unfair in requiring that stockbrokers and other financial advisors always put their customer’s best interests first?”<\/p>\n

So, we return to the potential issue of the SEC’s “revolving door” and its potential impact on investor protection.\u00a0 The suggestion that the SEC’s staff\u00a0 is leery of approving a universal fiduciary standard due to the possible repercussions it may\u00a0have on future employment opportunities is interesting, given the recent announcement by FINRA, one of the investment industry’s regulators.\u00a0 In\u00a0Regulatory Notice 12-25, <\/a>FINRA clearly stated that stockbrokers are always required to put their customers’ best interests first,\u00a0citing several enforcement actions and legal decisions supporting their position. Therefore, the SEC could justify their decision to adopt a universal fiduciary standard as simply an attempt to harmonize a universal position.<\/p>\n

Furthermore, legal decisions have firmly established that stockbrokers and other financial advisors managing investor accounts on a discretionary basis are fiduciaries. The courts have also held stockbrokers and other financial advisors to a fiduciary standard where a customer lacks the knowledge and experience to properly understand and handle their own account, resulting in a customer routinely following their advisor’s recommendations. The SEC could simply point to these cases in support of following cases recognizing the need to protect the public against unethical practices.<\/p>\n

Common sense dictates that stockbrokers and other advisors should not be allowed to put their own financial interests ahead of their customer best interests. The late General Norman Schwarzkopf once said that “[t]he truth is, we all know the right thing to do. The hard part is doing it.” Hopefully the SEC will heed\u00a0General Schwarzkopf’s advice and\u00a0honor their mission statement\u00a0by stepping up and doing\u00a0the right thing.<\/p>\n

To learn more about James Watkins, visit him at www.investsense.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Securities law is a very specialized type of law. As a result, regulatory bodies such as the Securities and Exchange Commission (SEC) recruit securities lawyers in law firms to join the SEC. Many lawyers that join\u00a0do so with the intent of gaining\u00a0experience and leveraging their time at the SEC into a higher paying position with a Wall Street law firm. While there is nothing inherently wrong with the practice, it<\/p>\n","protected":false},"author":23,"featured_media":3430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[325],"tags":[],"class_list":["post-3342","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-advisors"],"yoast_head":"\nDoes the SEC's "Revolving Door" Impact Investor Protection?<\/title>\n<meta name=\"description\" content=\"Many lawyers join the SEC, leveraging their time there into a higher paying position with a Wall Street law firm. 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