Page 9 - Miami Vol 6 No 1

trust companies also have a duciary re- lationship with their clients as required by the state laws that govern trust companies. e duciary standard is built on a duty of loyalty meaning that the
duciary cannot put his personal interests before the duty to his client. A - duciary is the highest stan- dard of client care under the law.
missioned product to his client. Reputable brokerage rms should have policies and procedures in place to monitor such be- havior and hold it in check. A key distinc-
kers to perform reasonable diligence on products, understand these investments and have a reasonable basis to think that a security or investment strategy is suitable.
“ ... it is important to understand the type of rm a client is working with and the level of legal responsibility the investment professional has to the client.”
It adds the investor’s age, in- vestment experience, time horizon, liquidity needs and risk tolerance to the list of factors that a ect a suitabil- ity determination. In regula- tory and professional circles, there are discussions about whether to elevate the stan- dard of care of BDs to that of the duciary standard, but this has not happened yet and has met considerable re- sistance.
BDs and their RRs are
held to a di erent legal
standard called the suit-
ability standard. ey are
required to recommend
suitable investments to
their clients per the rules of
conduct of their regulatory organization, known as FINRA, and the SEC. As stated earlier, RRs can be paid a commission and/or some form of additional compen- sation on sales of investment products, which could in uence behavior. If one product pays a higher commission than another product, that RR may be more inclined to recommend the higher com-
tion is that an investment advisor or trust company typically focuses on a client’s en- tire portfolio and a BD may focus on the individual securities transactions from where their commissions arise.
FINRA has instituted an overhaul of the suitability standard provisions that took e ect in July 2012. Signi cant aspects to this revision are the requirements of bro-
In the end, when selecting an invest- ment professional to work with, it is im- portant to understand the type of rm a client is working with and the level of le- gal responsibility the investment profes- sional has to the client. It is important to ask questions. Not all investment rms are alike and the investment options available can be quite di erent.
Vol. 6 No. 1 Attorney at Law Magazine® Miami | 9