Brokers Investment Advisers owe fiduciary duty to customers

Press Release – April 2007

For additional information:

Chris McConnell, AIFA

(310) 943 – 6509

Court strips Brokers’ “camisole”!

The U.S. Court of Appeals for the District of Columbia issues majority opinion in FPA v. SEC.

See the link

Brokers who charge an asset based fee or a fixed fee also known as a commission replacement arrangement are in receipt of “special compensation”, are not exempt “other persons” rather are deemed investment advisers. Investment advisers must register and comply with the Investment Advisers Act of 1940 (IAA).

Recommended steps for:
Estate Planners, Trust counsel, Tax and ERISA Counsel, Business Managers and CPA’s

The Center for Fiduciary Studies and the AICPA released Prudent Practices for Investment Stewards, over 20 steps based on Uniform Prudent Investor Act (adopted by over 45 states), ERISA, Uniform Management of Public Employees Retirement Systems Act, Uniform Management of Institutional Funds Act, case law and or regulatory opinion letter.

  1. IAA 202(a)(11)(B) names attorneys, accountants, engineers and teachers as exempt from registering as investment advisers provided they refrain from: a. Providing more than solely incidental investment advice; b. Related definition: receiving compensation as a regular part of one’s professional practice.
    1. Some attorneys and CPAs have formal or informal revenue or fee-sharing arrangements with brokerage firms, financial planners, investment advisers, insurance agents in return for referring customers.
    2. Some have established a separate investment advisory unit to accomodate this aspect of their professional practices; clearly subjects the attorney and or CPA to the investment fiduciary standards of care and for ERISA accounts, liable for both the acts and or omissions of other fiduciaries.
    3. Have you reviewed your malpractice or E&O insurance policy? Fiduciary liability and or ERISA related claims may not be covered.
  2. Refrain from recommending to a client any investment company (mutual fund or any investment product), trust company, investment adviser, stock broker, securities or insurance licensed individual who at a minimum, fails to provide a fiduciary acknowledgement letter to your client as should be specified in the client’s investment policy statement. Awareness, understanding and acknowledgement of fiduciary status is essential in the overall investment program.
  3. Determine which clients are fiduciaries. Alert these clients to their fiduciary responsibilities.
  4.  Before clients accept a trusteeship or board position suggest training in fiduciary responsibility from a totally independent, experienced and qualified source.

Fiduciary responsibility(1) and liability rests on trustees of:

* Revocable, irrevocable, charitable and other types of private trusts

* 401k, defined benefit pension or profit sharing plans

* State, County or City public employee’s pension plans

* Union or Taft Hartley pension plans

* 501 c 3 Non-profit organization, Foundation or Endowment investment accounts

* May and often includes other securities, banking and insurance licensed persons and entities

* May include, depending on the circumstances, legal counsel and or CPA

(1) Responsibility remains with trustees, it cannot be delegated away.


Accredited Investment Fiduciary Analyst
Provides objective fiduciary training and education for attorney, trustees and CPAs.

Decidedly independent:
Does not market or sell any type of securities, investments or insurance.
Does not accept fees to refer clients to investment advisers, stock brokers, etc.

For more information or (310) 943 – 6509

Copyright Chris McConnell & Associates 2007 – 2011. All rights reserved.