Chris McConnell & Associates Offers Guidelines on Fiduciary Duty to Investors
Chris McConnell, AIFA® the CEO of Chris McConnell & Associates/FiduciaryFORENSICS®, is now directing his firm to pay increased attention to the need for compliance with existing requirements for fiduciary responsibility in the investment community. CMA sees a new market emerging in helping clients to understand the role of fiduciaries in restoring confidence in the securities market and protecting their investments. CMA also helps investors recover losses when fiduciary standards have been violated. According to McConnell, the US government and state governments have had fiduciary standards in place for decades but they have often been ignored. Currently, additional standards are about to come before Congress for approval.
Los Angeles, CA (PRWEB) June 23, 2009 -- Chris McConnell, AIFA® the CEO of Chris McConnell & Associates/FiduciaryFORENSICS®, is now directing his firm to pay increased attention to the need for compliance with existing requirements for fiduciary responsibility in the investment community. CMA sees a new market emerging in helping clients to understand the role of fiduciaries in restoring confidence in the securities market and protecting their investments. CMA also helps investors recover losses when fiduciary standards have been violated. According to McConnell, the US government and state governments have had fiduciary standards in place for decades but they have often been ignored. Currently, additional standards are about to come before Congress for approval.
What is a Fiduciary?
A broker owes an undivided loyalty to his or her client and must place the client's interest ahead of its own, not -- as some interpret it as the vague "in the client's best interest" -- but as the sole interest. This means the brokers' interests should come only after the customers', regardless of whether a customer pays commissions or fees, and regardless of the type of account or service. A broker owes his client undivided loyalty.
As it now stands, brokers can refuse service and "fire" a customer
Absent required due diligence, brokers can, should, and do terminate customers accounts for any number of reasons related to compliance. In disputes, Brokers usually counter that the client has never complained. McConnell asks, "When was the right time, who was the expert, and who was being paid for service?"
He also suggests that it may be useful to ask if the customer's firm has accepted TARP funds. Some banks and brokerage firms couldn't properly manage their own proprietary investments -- and this raises serious questions.
The fiduciary duty of stockbrokers is not new
For ERISA (pension, profit sharing & 401K) accounts, endowments, foundations, trusts, guardianships, and conservatorships, there have been laws on the books for decades that should have been followed routinely. IRAs and IRA Rollovers (often from 401k accounts) are individualized, tax advantaged "trust accounts" under IRS code section 408 (http://ftp.irs.gov/pub/irs-tege/irc408.pdf). All trust accounts require a broker to provide a fiduciary standard of care.
When investors lose money, is it due to the "market" or something else?
Some brokers try to duck responsibility and blame investors' losses on the overall market, when it's rarely prudent to be 100% invested in stocks. A balanced account went down 16% last year, in 2007 up 6.25% - if your account performed a lot worse you may have a potential claim against your broker.
A trade is only the estuary of the river of revenue for broker dealers and their affiliates
At brokerage firms including Schwab, Fidelity, E*Trade, and Scottrade, each trade is only the beginning of the potential revenue stream for the brokerage. Money market fund diversions to affiliated banks, mutual fund revenue sharing, managed accounts, order flow, margin, stock lending profits, failures to shop trades or provide best execution are a few examples of additional revenue sources. Some of these discount firms claim immunity from suitability, supervision and fiduciary duty under Notice to Members 01-23. But a full reading reminds all brokerage firms of their responsibility to know and protect the customer, not the brokerage firm.
Fiduciary Masquerade
"We should ask brokers and financial advisers to acknowledge their fiduciary duty on their firm's letterhead," says McConnell. "In some professional fields, this would be called the unauthorized practice of law or medicine, etc. Yet despite over 30 years of legal fiduciary requirements the securities industry rarely if ever trains its brokers in fiduciary duty.
Resources and Action steps you can take
If clients need assistance in understanding the responsibilities, fiduciary duties, and industry compliance and supervisory requirements of a brokerage firm, stock broker, branch manager, financial adviser, investment adviser, hedge fund, mutual fund or derivative security, McConnell recommends that they consult a fiduciary expert.
About Chris McConnell, AIFA®
Chris McConnell received a BA, Economics/Accounting from Rutgers University in 1983, passed the CPA exam for New York State in 1986, and received an MBA from Pepperdine University in 1990. He received the Accredited Investment Fiduciary Analyst™ (AIFA®) designation from the Center for Fiduciary Studies in 2003. He has an unmatched blend of experience, education, training and insights concerning fiduciary duty. He wrote or supervised a major broker dealer's accounting, financial analysis, payroll, compensation, bonus, compliance, and industry strategy.
He is the only AIFA with actual hands-on financial, sales and supervisory management experience at all levels with two major Wall Street broker dealers.
Since 2003, Chris McConnell & Associates has provided continuing legal education, audit, training, and expert witness litigation support to attorneys representing both plaintiffs and defense in FINRA arbitration, Trust Estate & Probate, Divorce, QDROs, ERISA, Profit sharing & 401k plans, and charities, foundations and endowment, and compensation, employment and professional malpractice matters.
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