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The Securities Industry Puts Its Interests Ahead Of Its Customers

June 10, 2016 Blog


The Securities Industry is incapable of putting its customers first.

That’s clear after taking a look at the growing legal and political storm surrounding a new investor protection rule recently put forth by the Department of Labor.

After years of deliberation and study, the DOL in April issued a common sense fiduciary duty rule that requires stockbrokers to act as fiduciaries when working with retirement accounts. It means that brokers must put their customers’ interests first.

In the end, the new rule should protect clients’ retirement accounts from unscrupulous advisers loading them up with high fee, proprietary products. The DOL is particularly concerned about this practice when clients “roll over” their retirement accounts from their employer to an account, such as an IRA, which they control.

Having a fiduciary standard in place is a huge win for investors; it’s a much higher standard than the one currently used to judge advisers’ decisions to buy and sell investment products for clients. By the way, the Securities and Exchange Commission is considering a similar rule to oversee brokerage accounts. So, why the big stink about the DOL’s fiduciary rule?

Rather than do the right thing and applaud this powerful new protection for Mom and Pop investors, Wall Street immediately attacked the rule and has been lobbied Congress to pass a bill to kill it. President Obama promptly vetoed the bill.

Undeterred , the Securities Industry then  went to a federal court in Texas to challenge the rule.

Wall Street and the rest of the financial services industry have routinely decried the new investor protections as being unduly complex. In the end, they claim, it will make financial advice too costly for many Mom and Pop investors.


Among the plaintiffs in the new lawsuit against the DOL are some of the most powerful Wall Street and financial services lobbying organizations in the Country. They include the Chamber of Commerce of the United States of America; the Financial Services Institute; the Financial Services Roundtable; the Insured Retirement Institute; and the Securities Industry and Financial Markets Association.

According to a report in the industry publication InvestmentNews, the lawsuit claims that “the rule and [prohibited transaction exemptions] overstep the Department’s authority, create unwarranted burdens and liabilities, undermine the interests of retirement savers, and are contrary to law,”.

In other words, the DOL’s new fiduciary rule does too good a job of protecting investors from Wall Street. How’s that for logic?

“This fiduciary rule, the [best interest contract] exemption and the other related [prohibited transaction exemptions] are arbitrary, capricious and violate the [Administrative Procedure Act] and First Amendment. They should be vacated, and the Department should be enjoined from implementing or enforcing them in any manner,” according to the complaint, as cited by InvestmentNews.

Give me a break.

There is nothing “arbitrary” about treating customers properly instead of pushing them to buy high-fee, proprietary products in their retirement accounts. There is nothing “capricious” about giving clients proper advice.

By the way, the financial services industry also opposes the provision of the new rule that permits investment fraud lawyers to file class action cases to enforce compliance. Huh?

We hope the courts will spurn the Securities Industry’s challenge to the DOL fiduciary rule. We hope the courts will stand up for investors’ rights. After the bust of 2000 and the mortgage crash of 2008, investors need this new protection.

Zamansky LLC are investment and stock fraud attorneys representing investors in federal and state litigation and arbitration against financial institutions.