Dean Starkman's otherwise informative article on financial advisers ["ISO: An Adviser to Trust," Sunday, Sept. 18] is wrong about brokers who offer their customers financial advice. The article asserts that brokers "are the least accountable to investors" because, unlike investment advisers who owe fiduciary duties to their customers, brokers merely have to ensure that an investment recommendation is suitable based on the customer's income, tax status, investment goals and other criteria.
This is off the mark on two counts. First, virtually all brokerage firms that offer investment advice are registered as both broker-dealers and investment advisers. Only about a quarter of fee-based accounts at these firms are in the form of brokerage accounts, subject to a suitability standard, while three-quarters are advisory service accounts for which the firm's representatives owe the same fiduciary duty to their customers as other investment advisers that do not work for a broker-dealer.
Second, the premise that the regulations applicable to brokerage accounts are inferior to the fiduciary duties owed by an investment adviser to a client is dubious. Broker-dealers, but not investment advisers, are subject to numerous regulatory protections, including not only a suitability requirement but continuing education requirements, a raft of required disclosures to customers upon account opening as well as after each transaction in the account, protection of customer funds from the brokerage firm's insolvency through the Securities Investor Protection Act, and ready availability of broker disciplinary history through the NASD's online Central Registration Depository database.
While brokers are regulated differently from investment advisers, it is misleading to suggest that they are regulated less stringently.
-- George R. Kramer
The writer is deputy general counsel for the Securities Industry Association.