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Puerto Rico Leads The Way In Investor Protection

November 25, 2013 Blog

We have been blogging about Puerto Rican municipal bonds over the last several weeks. The situation for mom and pop investors and retirees in Puerto Rico is dire, to say the least.

Our concern has been that brokers at UBS and other firms recommended an over concentration in UBS Puerto Rico Bond Funds and individual Puerto Rico municipal bonds in conservative and retired investors’ accounts. The accounts have taken a huge hit as the bonds have plummeted in value, with some funds down 50% to 60% in the just past couple of months.

But, we may have found a silver lining for these investors.

Under Puerto Rican law, financial advisors owe a “fiduciary duty” to act in their customers’ best interests. And that “fiduciary duty” standard could in the end save the clients who bought Puerto Rico’s municipal debt from their brokerage house.

Individual investors are compelled to sue their brokerage firms through an arbitration system run by the securities industry’s self-governing body, FINRA, which is overseen by the Securities and Exchange Commission. If FINRA arbitration panels reviewing these Puerto Rico bond complaints against UBS and other brokerages find that this “highest duty under the law” was violated, the securities house is obligated to pay the client an award decided by the panel.

Believe it or not, the SEC has failed to enact such a “fiduciary” law in the United States despite the fact that the credit crisis law, known as Dodd-Frank, gave the SEC the green light to put a fiduciary standard into place for the securities industry years ago.

Remember, a stockbroker at UBS, Merrill Lynch, Morgan Stanley or anywhere else up and down the Street is not a fiduciary. He is a broker and a salesman, operating under far less consumer-friendly rules and guidelines than a fiduciary standard.

U.S. investors may soon gain this valuable protection. An SEC advisory panel last week said that it was time to enact the fiduciary duty standard for investors.

A recent article in InvestmentNews had this to say:

“A Securities and Exchange Commission advisory panel called on the SEC to move forward with a rule that raises investment-advice standards for brokers,” reported Mark Schoeff. “In a voice vote, the SEC Investor Advisory Committee approved a recommendation that the commission promulgate a rule that would require brokers to act in the best interests of their clients when providing retail investment advice. That would subject brokers to the same standard that investment advisers meet.”

The InvestmentNews report continued: “The Dodd-Frank financial reform law gave the SEC the authority to impose a uniform fiduciary duty for retail investment advice. But it isn’t a mandatory rule, and the SEC hasn’t indicated when or whether it will propose a rule. The SEC is conducting a cost-benefit analysis of the market impact of a potential regulation.”

“’What we’re doing here is saying, ‘Please move this to the front burner,’’ said Darcy Bradbury, managing director and director of external affairs at D.E. Shaw & Co. ‘Of all the things in Dodd-Frank, this needs to get going.’”

This blog couldn’t agree more. What’s more, SEC Chair Mary Jo White said after the same meeting that this was “a very important issue” in her eyes.

It’s time for the SEC to catch up with Puerto Rico. Put the fiduciary standard into place and give investors the protection they need and deserve.

Zamansky LLC are securities and investment fraud attorneys representing investors in federal and state litigation against financial institutions, including UBS. For more information about Zamansky LLC, please visit