One aspect of the sub-prime crisis that will affect individuals and small associations at the most basic level is the question of what kind of fiduciary duty will be imposed on financial intermediaries. The determination has already been made that brokers (BD’s) will have such a duty but not exactly similar to advisors (IA’s), who already have the duty. http://www.investmentnews.com/article/20090310/REG/903109958 . An SEC commissioned study has found that most of the investing public is confused about these differences. Perhaps an easy distinction is that with an IA you pay separately for advice and commissions. If you want that advice to cover insurance and future health care planning, you probably should seek out an advisor. If your only interest is the securities market, you may be very comfortable with a broker.

 One noticeable trend is the migration of salesmen to the advisor regime. “The Charles Schwab Corp. said its campaign to help wirehouse brokers become independent investment advisers is picking up speed at summer's end. Year-to-date as of July 31, the firm has helped 86 teams of wirehouse brokers set up their own advisory firms or join existing registered investment advisers. That number grew to 101 at the end of August and 115 as of this week, Schwab officials said. In 2008, just 75 teams had left the shelter of broker-dealers as of the end of August.” http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20090915/REG/909159971/1094/INDaily01
It’s a surprise to many BD customers that their brokers do not have a fiduciary duty but instead a suitability requirement. Although many honorable brokers will treat their customers as if they had such a duty, their customers cannot sue them on that basis. The practical application of this discussion is that if you are managing your own money or your association’s money you ought to talk to a representative of both entities to decide where you are most comfortable. If you need further information on this debate please feel free to contact us.