Posted on 05/12/2010 9:48:20 AM PDT by mlocher
This year I wrote a column that argued it was time to start a debate about the definition of “sophisticated” investor. That was sparked by a saga bubbling in Italy, where investment banks have flogged numerous derivatives trades to local governments, and other entities (including convents) - and some of the deals are now turning sour, sparking law suits.
Now, however, this issue of investor “sophistication” has become doubly fraught, for reasons that have nothing to do with Italian nuns. Earlier this week, two Democratic senators filed an amendment to the US financial reform bill, that seeks to impose a fiduciary duty on all registered broker-dealers, when they deal with investors.
That would mean that a Wall Street broker would have to protect clients at all times, instead of the bank, even when acting as a counterparty. Or, as Arlen Specter, Democratic senator co-sponsoring the bill, said. “This is a commonsense amendment that seeks to close a gaping loophole in federal law where brokers and dealers can avoid putting their clients’ interest first.”
(Excerpt) Read more at news.fidelity.com ...
Morally, financial products salesmen should be selling what will make the customer the most money instead of the salesman the most money, but I have so little faith in the government doing it right (as opposed to just using it as a hammer to collect more bribes and punishing those who don't come through with campaign cash) that I don't think new laws are the answer.
They may be sophisticaed but do they have fat fingers?
Why not enact a law that requires any investor that is back-stopped by tax-payers (such as municipalities, state agencies and pension-funds) to only buy financial assets that are traded on public exchanges?
Clearly, such a law would prevent those entities from “investing” in “private placements”. But, as we have seen, “private placements” are rife with fraud, misrepresentations and self-dealing.
Such a law would be so easy to understand that I expect members of our corrupt Congress would ask, “How does this law help me meet my “fund-raising” goals?”
So I have little hope that such a simple “bright-line” law would ever be passed.
Too bad...
Why not enact a law that requires any investor that is back-stopped by tax-payers (such as municipalities, state agencies and pension-funds) to only buy financial assets that are traded on public exchanges?
Clearly, such a law would prevent those entities from “investing” in “private placements”. But, as we have seen, “private placements” are rife with fraud, misrepresentations and self-dealing.
Such a law would be so easy to understand that I expect members of our corrupt Congress would ask, “How does this law help me meet my “fund-raising” goals?”
So I have little hope that such a simple “bright-line” law would ever be passed.
Too bad...
I agree with you about the government not doing it correctly. I believe that there are fiduciary financial advisors and non-fiduciary financial advisors already. The problem is that many people do not understand this and do not know what questions to ask. People need to beware and educate themselves before they purchase anything. Gov’t cannot save us from ourselves.
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