FINRA’s Illusionary “Best Interests” Standard
(unabridged and with footnotes)
NOTE TO READERS: This article previously appeared in RIABiz in a two part series:
- Tick, tick, tick ... FINRA rewrites 'culture,' 'conflicts of interest' and 'ethics' into a farcical 'best interests' code after DOL drops a bomb on its suitability ethos
- Part II: Tick, tick ... How FINRA tramples on 'settled' principles of the Supreme Court, and even Adam Smith, in its sanctification of two-hatted advice
I now offer the original version of the articles, with recitations to authorities.
“I am a stock and bond broker. It is true that my family was somewhat disappointed in my choice of profession.” – Binx Bolling, The Moviegoer (1960)
FINRA recently advanced a “best interests” standard. Yet, the reality is that a great deception is occurring by this brokerage-owned “self-regulatory organization,” in which a true fiduciary standard is resisted as FINRA, along with brokerage lobbying organization SIFMA. Instead, these organizations seek to re-define a centuries-old, strict legal standard to a new suitability regime, together with casual disclosure of conflicts of interest combined with securing the customer’s uninformed consent. In so doing, FINRA endorses an exacerbation of consumer confusion as it seeks to further obfuscate the merchandizing role of broker-dealer firms.
In touting a new “best interests” standard that, as will be shown, falls far short of a true fiduciary standard of conduct, FINRA perpetuates a 75-year history of opposing the substantial raising of standards of conduct for brokerage firms and their registered representatives. In so doing, FINRA continues its long-standing failure to live up to the hopes of Senator Maloney, who once stated that his Maloney Act of 1938 (which led to the establishment of NASD, now known as FINRA) had, as its purpose, “the promotion of truly professional standards of character and competence.” The compelling solution for these decades-long failures is to disband FINRA.
FINRA Chair Ketchum Suggests “Best Interests” Standard for Brokers
In his May 27, 2015 address to broker-dealer firm executives gathered at the 2015 FINRA Annual Conference, FINRA Chair and CEO Richard Ketchum inquired of brokers whether “the time has come to require broker-dealers, when recommending a security or strategy to retail investors, to ensure that the recommendation is in the ‘best interest’ of the investor.” Mr. Ketchum went on to equate the “best interest” standard with the “fiduciary standard,” noting that the standard has existed under the law for centuries. Mr. Ketchum then outlined what a “best interest” standard for brokers would look like, based upon the principles involving “consent” by the customer to conflicts of interest, procedures to “manage” conflicts of interest, “more effective disclosure” to customers, and that firms undertake “fee leveling” for registered representatives.
Yet, despite Mr. Ketchum’s apparent support for a fiduciary standard, in the same speech he opposed the U.S. Department of Labor’s proposed rule-making, calling it “problematic” with the necessity of “contractual interpretations” by jurists and further questioning “how a judicial arbiter would analyze whether a recommendation was in the best interests of the customer ‘without regard to the financial or other interests’ of the service provider.”
Yet FINRA’s objections appear to this observer to be nonsensical, in light of history. The fiduciary duty of loyalty, often referred to as requiring the adviser to act in the “best interests” of a client, has – as Mr. Ketchum stated – been applied in various legal contexts for hundreds of years. Moreover, judges and arbitrators have, for centuries, interpreted contracts.
Moreover, the additional DOL requirement that FINRA unfathomably objects to, that firms and advisers act “without regard to the financial or other interests” of the service provider, is derived from Section 913 of the Dodd Frank Act. It is the language that must be applied by the SEC, if and when the SEC moves to adopt a fiduciary standard for brokers. Moreover, in the eyes of this observer, this additional language much more clearly establishes a clear test for judicial finders of fact than the vague suitability standards, and this language provides concrete guidance for both brokers and their registered representatives.
In 2016, Does FINRA Seeks to Address a Brokerage Firm’s “Culture” and “Ethics”?
In FINRA’s 2016 Regulatory and Examination Priorities Letter, promulgated on Jan. 5, 2016, FINRA also sought to address three broad issues of “culture” and “conflicts of interest” and “ethics.”
With regard to “culture,” FINRA referred “to the set of explicit and implicit norms, practices, and expected behaviors that influence how firm executives, supervisors and employees make and implement decisions in the course of conducting a firm’s business.” Yet, while FINRA noted that a brokerage firm’s “culture has a profound influence on how a firm conducts its business and manages its conflicts of interest,” FINRA also stated that it “does not seek to dictate firm culture ….”
As to conflicts of interest, FINRA appears to take an approach similar to the U.S. Department of Labor’s proposed “Best Interests Contract Exemption” (BICE) to its proposed “Conflicts of Interest” rule. FINRA states that its targeted examinations of brokerage firms “encompasses firms’ conflict mitigation processes regarding compensation plans for registered representatives, and firms’ approaches to mitigating conflicts of interest that arise through the sale of proprietary or affiliated products, or products for which a firm receives third-party payments (e.g., revenue sharing).” Likewise, DOL’s proposed BICE prohibits differential compensation to individual registered representatives (while still permitting same to the brokerage firm itself, subject to certain restrictions), and sets standards before proprietary products can be recommended to customers.
As to “ethics,” while FINRA stated that it was a broad area of focus, not surprisingly there is little discussion in FINRA’s letter that directly addresses a broker-dealer firm’s code of ethics.
Does FINRA Already Possesses a “Best Interests” Standard?
In Mr. Ketchum’s 2015 remarks he speaks of brokers moving toward a “best interests” standard. Yet, in widely criticized earlier 2011 and 2012 releases, FINRA already opined that a “best interests” standard exists for brokers.
In 2012 guidance to brokers regarding FINRA Rule 2111 (“Suitability”), FINRA previously stated that, “In interpreting FINRA's suitability rule, numerous cases explicitly state that ‘a broker's recommendations must be consistent with his customers' best interests.’” FINRA’s statement was largely seen as a movement toward a fiduciary standard, as found under the Investment Advisers Act of 1940.
FINRA’s True Intentions Revealed: Support for SIFMA’s New “Best Interests” Standard
In its July 17, 2015 comment letter to the U.S. Department of Labor, FINRA revealed the ugly truth that it’s interpretation of “best interests” falls far below that required by a bona fide fiduciary duty of loyalty. FINRA stated:
“FINRA has publicly advocated for a fiduciary duty for years and agrees with the Department that all financial intermediaries, including broker-dealers, should be subject to a fiduciary “best interest” standard … At a minimum, any best interest standard for intermediaries should meet the following criteria … The standard should require financial institutions and their advisers to:
· act in their customers’ best interest;
· adopt procedures reasonably designed to detect potential conflicts;
· eliminate those conflicts of interest whenever possible;
· adopt written supervisory procedures reasonably designed to ensure that any remaining conflicts, such as differential compensation, do not encourage financial advisers to provide any service or recommend any product that is not in the customer’s best interest;
· obtain retail customer consent to any conflict of interest related to recommendations or services provided; and
· provide retail customers with disclosure in plain English concerning recommendations and services provided, the products offered and all related fees and expenses.”
These criteria closely follow upon SIFMA’s more detailed proposal for a new “best interests” standard that would modify FINRA’s suitability rule. As will be discussed below, the requirements of FINRA’s suggested “best interests” standard do not impose a bona fide fiduciary duty of loyalty upon brokers.
Additionally, FINRA suggests to the DOL that it offer “offer financial institutions a choice: either adopt stringent procedures that address the conflicts of interest arising from differential compensation, or pay only neutral compensation to advisers.” Yet, the adoption of “stringent procedures” is not the adoption of a fiduciary standard of conduct. Nor does the payment of neutral compensation to advisers prohibit the broker-dealer firm, itself, from the receipt of additional compensation as they promote the sale of products that would pay them more. Also, the receipt of additional compensation by the broker-dealer firm would not adhere to the DOL proposed rule’s requirement that product recommendations be undertaken without regard to the financial or other interests of the financial institution.
FINRA also suggests to the DOL that it, in essence, lower the fiduciary duty of due care. FINRA states, incorrectly, that: “Fiduciaries generally are not required to discern or recommend the ‘best’ product among all available for sale nationwide or worldwide. Investment advisers, for example, are required to recommend suitable investments, not the ‘best’ investment available to the customer. A requirement to recommend the ‘best’ product would impose unnecessary and untenable litigation risks on fiduciaries.” Yet, fiduciaries, in adherence to their fiduciary duty of due care, and judged against other prudent experts, clearly possess the obligation to undertake extensive due diligence. This due diligence requires fiduciaries to select the best investments resulting from the fiduciary’s due diligence processes, augmented with the exercise of good judgment during the due diligence process.
Think about it. A fiduciary also possesses a fiduciary duty of utmost good faith, which includes as part thereof a duty to the client of honesty and complete candor. Would, in observance of this duty, a fiduciary ever go to a client and state: “Our due diligence has indicated that this is the third-best mutual fund on the marketplace today within this asset class. But, even though other two other products would be better for you, we don’t recommend them.” Of course not. While fiduciary advisers certainly, in their exercise of good judgment, might disagree about what product is “best,” once a fiduciary adviser determines through a properly applied due diligence process the “best” investment product to meet the client’s specific needs, then the fiduciary has the obligation to recommend that product to the client.
I am not suggesting that all fiduciaries would reach the same conclusion, as to the choice of either investment strategy or investment products. But a due diligence process, using sound criteria, and applying good judgment, will result in a “best product” to be discerned by that adviser, and the fiduciary adviser would clearly be unwise if such product were not recommended.
What FINRA really wants the broker to be able to do, by its comment, is to continue to recommend virtually any product, under the failed suitability standard, even when that product is nowhere close to being the best product in the marketplace.
FINRA’s Failed Suitability Standard
Even though FINRA in its June 17, 2015 comment letter criticizes the DOL for introducing “new concepts that are fraught with ambiguity, the reality is that FINRA is the promulgator of ambiguous and often contradictory rules and statements with regard to the standards governing brokers.
In fact, it is FINRA’s suitability standard that is both ambiguous and often arbitrarily applied. In the early 20th Century, FINRA’s suitability standard was originally designed to mitigate the duty of due care that all service providers possess, in recognition that a broker should not be liable for the default of a security merely for performing “trade execution” services.
Inexplicably, however, the suitability standard was expanded in the 1970’s to brokers’ recommendations of investment managers (including mutual fund providers). In turn this has led to a wide plethora of pooled investment vehicles, often expensive, and often with “hidden” revenue-sharing. The result has been widespread harm to investors, given the substantial academic research demonstrating the close relationship between high mutual fund fees and costs and lower returns, on average. Moreover, individual Americans are unable to recover from brokers due to a breach of the duty of due care, since brokers do not possess such a duty – even thought nearly every other service provider in the United States possesses such a duty.
Instead, investors are left, under suitability, with a subjective, unclear, amorphous legal standard. Even worse, the suitability standard is applied in FINRA arbitration, not as a strict legal standard, but rather under an approach of “equitable fairness” – leading to an inefficient and confused application of the law by arbitrators with no duty to record their reasoning, and from which arbitration there are very limited rights of appeal.
Suitability does not generally require registered representatives to recommend a lower cost product with similar risk and return characteristics, if one is available. Nor does the suitability doctrine require monitoring of an investment portfolio (even where ongoing fees are received by the brokerage firm). Nor does suitability require the design and management of the investment portfolio for a client in a tax-efficient manner.
FINRA’s Confusing, Contradictory Statements
FINRA’s statements over the past few years have often been contradictory. FINRA stated to brokers in its earlier release regarding Rule 2111 that brokers’ recommendations must be consistent with the “best interests” of their customers. Yet, just last year, FINRA stated to the U.S. Department of Labor: “We recognize that imposing a best interest standard requires rulemaking beyond what is presently in place for broker-dealers.” [Emphasis added.]
In 2005, FINRA opposed the application of the Advisers Act’s fiduciary duties upon brokers who provided fee-based accounts, even though FINRA acknowledged that, “[f]rom a retail client’s perspective, the differences between investment advisory services and traditional brokerage services are almost imperceptible.” Stating that “brokerage investors are fully protected” FINRA even questioned the need for additional disclosures to investors.
In a widely criticized statement, FINRA also expressed in 2005 that the SEC’s proposed disclosure for fee-based accounts “implies that customer’s rights, the firm’s duties and obligations, and the applicable fiduciary obligations are greater with respect to an investment adviser account than they are with respect to a brokerage account. As we have previously discussed, this is simply not the case.” FINRA’s statement is clearly erroneous, as everyone and their mother agree that the fiduciary standard is a higher standard than the suitability standard. FINRA’s statement is also contradictory to the FINRA Chair’s recent comments in which he suggests that brokers move toward a higher “best interests” standard.
BD Execs Agree? “Best Interests” = “Fiduciary Duty of Loyalty”
In a December 2, 2015 hearing before the Subcommittee On Health, Employment, Labor, And Pensions, of the U.S. House Education and Workforce Committee, Mr. Jules O. Gaudreau, Jr., ChFC, CIC testified, on behalf of the National Association of Insurance and Financial Advisors, under oath: “We already believe that we do engage in the best interests of our clients; we take an ethics pledge on their behalf.”
Subsequently, U.S. Representative Suzanne Bonomaci addressed testimony in an earlier hearing, noting that securities industry executives all responded affirmatively when she inquired, “Just to be clear, does everyone agree that a ‘best interests’ standard means a ‘best interests’ fiduciary standard?”
Yet, Mr. Gaudreau later testified, “These decisions that consumers make in the financial realm are based upon rapport and trust and relationships. These are not just simple transactions … we don’t disagree that we should work in the best interests of our clients; my family’s been doing that for a hundred years. In fact, it’s a little insulting to imply that we ever haven’t. The fact is that we absolutely agree with that and endorse that public policy.”
"Should retirement advisors be able to place their own profit-seeking before the best interests of their clients?" asked U.S. Rep. Ellison at the Sept. 10, 2015 Congressional Joint Hearing before the Subcommittees on Oversight and Investigations and Capital Markets and Government Sponsored Enterprises, of the House Financial Services Committee, entitled “Preserving Retirement Security and Investment Choices for All Americans." The President of NAIFA replied: “No.” Immediately thereafter all of the panelists, most of whom represented the securities industry, agreed that they were for the "best interests" standard.
This begs the question … if insurance companies and broker-dealers say that they support acting in the “best interests” of their customers, do they truly understand the fiduciary duty of loyalty? Or, are the executives’ understandings of the term “best interests” flat out disconnected from the understanding of that legal term under fiduciary law, and as commonly understood by the vast majority of Americans?
Half-Truths and Deceptions
“Goldman's arguments in this respect are Orwellian. Words such as ‘honesty,’ ‘integrity,’ and ‘fair dealing’ apparently [in Goldman’s eyes] do not mean what they say; [Goldman says] they do not set standards; they are mere shibboleths. If Goldman's claim of ‘honesty’ and ‘integrity’ are simply puffery, the world of finance may be in more trouble than we recognize.” – Judge Paul Crotty, Richman v. Goldman Sachs Group, Inc., 868 F. Supp. 2d 261 (S.D.N.Y. 2012).
When we are dealing with the fiduciary standard of conduct, and its requirement that the fiduciary act in the “best interests” of the entrustor (client), we should not accept half-truths and deception. If the fiduciary standard is to possess meaning, we must hold firms and persons accountable to their words, and not regard these important words as mere “puffery.”
As stated by Professors James Angel and Douglas McCabe: “Where the fundamental nature of the relationship is one in which customer depends on the practitioner to craft solutions for the customer’s financial problems, the ethical standard should be a fiduciary one that the advice is in the best interest of the customer. To do otherwise – to give biased advice with the aura of advice in the customer’s best interest – is fraud.”
We Know that Disclosures Are Ineffective
Academic researchers have long known that emotional biases limit consumers’ ability to close the substantial knowledge gap between advisors and their clients. Insights from behavioral science further call into substantial doubt some cherished pro-regulatory strategies, including the view that if regulators force delivery of better disclosures and transparency to investors that this information can be used effectively. This is in large part due to many behavioral biases that limit the effectiveness of any form of disclosure.
Note as well that, as Professor Robert Prentice has written, “instead of leading investors away from their behavioral biases, financial professionals may prey upon investors’ behavioral quirks … Having placed their trust in their brokers, investors may give them substantial leeway, opening the door to opportunistic behavior by brokers, who may steer investors toward poor or inappropriate investments.”
Moreover, as observed by Professors Stephen J. Choi and A.C. Pritchard, “not only can marketers who are familiar with behavioral research manipulate consumers by taking advantage of weaknesses in human cognition, but … competitive pressures almost guarantee that they will do so.”
As a result, much of the training of registered representatives involves how to establish a relationship of trust and confidence with the client. Once a relationship of trust is formed, customers will generally accede to the recommendations made by the registered representative, even when that recommendation is adverse to the customers’ best interests.
The SEC’s emphasis on disclosure, drawn from the focus of the 1933 and 1934 Securities Acts on enhanced disclosures, results from the myth that investors carefully peruse the details of disclosure documents that regulation delivers. However, under the scrutinizing lens of stark reality, this picture gives way to an image of a vast majority of investors who are unable, due to behavioral biases and lack of knowledge of our complicated financial markets, to comprehend the disclosures provided, yet alone undertake sound investment decision-making.
As stated by Professor (now SEC Commissioner) Troy A. Parades: “The federal securities laws generally assume that investors and other capital market participants are perfectly rational, from which it follows that more disclosure is always better than less. However, investors are not perfectly rational. Herbert Simon was among the first to point out that people are boundedly rational, and numerous studies have since supported Simon’s claim. Simon recognized that people have limited cognitive abilities to process information. As a result, people tend to economize on cognitive effort when making decisions by adopting heuristics that simplify complicated tasks. In Simon’s terms, when faced with complicated tasks, people tend to ‘satisfice’ rather than ‘optimize,’ and might fail to search and process certain information.”
Other investor biases overwhelm the effectiveness of disclosures. As stated by Professor Fisch: “The primary difficulty with disclosure as a regulatory response is that there is limited evidence that disclosure is effective in overcoming investor biases. … It is unclear … that intermediaries offer meaningful investor protection. Rather, there is continued evidence that broker-dealers, mutual fund operators, and the like are ineffective gatekeepers. Understanding the agency costs and other issues associated with investing through an intermediary may be more complex than investing directly in equities ….”
The inadequacy of disclosures was known even in 1930’s. Even back during the consideration of the initial federal securities laws, the perception existed that disclosures would prove to be inadequate as a means of investor protection. As stated by Professor Schwartz: “Analysis of the tension between investor understanding and complexity remains scant. During the debate over the original enactment of the federal securities laws, Congress did not focus on the ability of investors to understand disclosure of complex transactions. Although scholars assumed that ordinary investors would not have that ability, they anticipated that sophisticated market intermediaries – such as brokers, bankers, investment advisers, publishers of investment advisory literature, and even lawyers - would help filter the information down to investors.”
We must acknowledge that, if disclosures were effective, fiduciary law would not exist. There would be no fiduciary duties imposed upon trustees, or attorneys, or others in a relationship of trust and confidence with their entrustor in which a substantial difference in either power or knowledge exists. Fiduciary duties are imposed because disclosures are effective.
Wear Two Hats? Impossible.
Time and again our courts have enumerated the fiduciary maxim: “No man can serve two masters.” Yet, FINRA promotes a new “best interests” standard that attempts to straddle a line that, simply, cannot be bestrode.
As the Virginia Supreme Court long ago stated: “It is well settled as a general principle, that trustees, agents, auctioneers, and all persons acting in a confidential character, are disqualified from purchasing. The characters of buyer and seller are incompatible, and cannot safely be exercised by the same person. Emptor emit quam minimo potest; venditor vendit quam maximo potest. The disqualification rests, as was strongly observed in the [English] case of the York Buildings Company v. M'Kenzie, 8 Bro. Parl. Cas. 63, on no other than that principle which dictates that a person cannot be both judge and party. No man can serve two masters. He that it interested with the interests of others, cannot be allowed to make the business an object of interest to himself; for, the frailty of our nature is such, that the power will too readily beget the inclination to serve our own interests at the expense of those who have trusted us.”
The observation that a person cannot wear two hats and continue to adhere to his or her fiduciary duties was echoed early on by the U.S. Supreme Court, “The two characters of buyer and seller are inconsistent.” The U.S. Supreme Court also observed: “If persons having a confidential character were permitted to avail themselves of any knowledge acquired in that capacity, they might be induced to conceal their information, and not to exercise it for the benefit of the persons relying upon their integrity. The characters are inconsistent.”
Why should an advisor not attempt to wear two hats? Simply put, because persons are weak. We are unable to not have our advice be affected by temptations (such as for additional compensation) that might exist. As the U.S. Supreme Court opined in its landmark 1963 decision, SEC vs. Capital Gains Research Bureau, “the rule … includes within its purpose the removal of any temptation to violate them …This Court, in discussing conflicts of interest, has said: ‘The reason of the rule inhibiting a party who occupies confidential and fiduciary relations toward another from assuming antagonistic positions to his principal in matters involving the subject matter of the trust is sometimes said to rest in a sound public policy, but it also is justified in a recognition of the authoritative declaration that no man can serve two masters; and considering that human nature must be dealt with, the rule does not stop with actual violations of such trust relations, but includes within its purpose the removal of any temptation to violate them … we [previously] said: ‘The objection … rests in their tendency, not in what was done in the particular case … The court will not inquire what was done. If that should be improper it probably would be hidden and would not appear.’”
Even Ardent Capitalists Recognize the Need for High Standards
Even Adam Smith, said to be the founder of modern capitalism, knew that constraints upon greed were required. While Adam Smith saw virtue in competition, he also recognized the dangers of the abuse of economic power in his warnings about combinations of merchants and large mercantilist corporations.
Adam Smith also recognized the necessity of professional standards of conduct, for he suggested qualifications “by instituting some sort of probation, even in the higher and more difficult sciences, to be undergone by every person before he was permitted to exercise any liberal profession, or before he could be received as a candidate for any honourable office or profit.” As seen, “Smith embraces both the great society and the judicious hand of the paternalistic state.” In essence, long before many of the professions became separate, specialized callings, Adam Smith advanced the concepts of high conduct standards for those entrusted with other people’s money.
Hiding the Distinctions Between Sales and Advice
The fundamental problem is that broker-dealer firms, represented by FINRA, SIFMA, and FSI, continue to advocate for the freedom to hold themselves out as trusted advisers, and to provide investment advice on American’s important financial decisions. Yet, these broker-dealer firms still desire to remain in a sales-customer relationship, instead of a fiduciary-client relationship.
Perhaps FINRA, SIFMA and FSI first need to understand the distinctions between the two general types of relationships between product and service providers and their customers or clients under the law – “arms-length relationships” and “fiduciary relationships.” “Arms-length” relationships apply to the vast majority of service provider–customer engagements.
In arms-length relationships, the doctrine of “caveat emptor” generally applies, although there are many exceptions made to this doctrine that effectively compel affirmative disclosure of adverse material facts in diverse contexts. In other words, non-fiduciaries who contract with each other can engage in “conduct permissible in a workaday world for those acting at arm's length.” The standard of conduct expected of the actors in arms-length relationships has also been described by the courts as the “morals of the marketplace.”
In contrast, under a fiduciary relationship, the fiduciary steps into the shoes of the client. The fiduciary adheres to the “fiduciary principle,” which Justice Philip Talmadge of the State of Washington Supreme Court aptly summarized: “A fiduciary relationship is a relationship of trust, which necessarily involves vulnerability for the party reposing trust in another. One's guard is down. One is trusting another to take actions on one's behalf. Under such circumstances, to violate a trust is to violate grossly the expectations of the person reposing the trust. Because of this, the law creates a special status for fiduciaries, imposing duties of loyalty, care, and full disclosure upon them. One can call this the fiduciary principle.”
The impact of serving in a fiduciary capacity is often underestimated, even by the DOL itself. I estimate that intermediation fees and costs fall by roughly half, on average, when a client transfers from a non-fiduciary adviser to a fiduciary adviser.
Others possess much higher estimates. For example, in a 2014 paper by Professor Mark Egan, he opined: “Brokers utilize the space of available products to price discriminate across consumers, selling high fee products to unsophisticated investors and low fee products to sophisticated investors … I structurally estimate the model to analyze the impact of the proposed broker regulations of the Dodd Frank Act. I find that holding brokers to a fiduciary standard over the period 2008-2012 would have increased investor returns by as much as 2.73% per annum.”
The Term “Best Interests” Has Legal Meaning
The fiduciary duty of loyalty, in which the adviser is bound to act in the client’s best interests, is central to the fiduciary principle; it is the principle’s most distinguishing characteristic. The term “best interests” has an established legal meaning, which FINRA should not be able to alter.
The phrase “act in the best interests of the client” is used to explain, in language a non-lawyer would understand, the core aspect of the fiduciary duty of loyalty. This use of the term “best interests” to describe the fiduciary duty of loyalty is frequently found in judicial decisions.
For example, in explaining the duty of loyalty owed by a board of directors to the corporation, the instruction to a lay jury reads: “Each member of the … board of directors is required to act in good faith and in a manner the director reasonably believes to be in the best interests of the corporation when discharging his or her duties.” Schultz v. Scandrett, #27158, Supreme Court of South Dakota, 2015 SD 52; 866 N.W.2d 128; 2015 S.D. LEXIS 85 (June 24, 2015).
In describing the fiduciary duty of the director of a corporation to the corporation and its shareholders, a court opined: “The duty of loyalty ‘mandates that the best interest of the corporation and its shareholderstakes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally.’ Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 362 (Del. 1993) (citing Pogostin v. Rice, 480 A.2d 619, 624 (Del. 1984) and Aronson v. Lewis, 473 A.2d 805, 816 (Del. 1984));see also Diedrick v. Helm, 217 Minn. 483, 14 N.W.2d 913, 919 (Minn. 1944). The classic example is when a fiduciary either appears on both sides of a transaction or receives a substantial personal benefit not shared by all shareholders. Id.” DQ Wind-Up, Inc. v. Kohler, Court File No. 27-CV-10-27509, Minnesota District Court, County Of Hennepin, Fourth Judicial District, 2013 Minn. Dist. LEXIS 118 (2013).
Similarly, “[t]he duty of loyalty requires that the best interests of the corporation and its shareholderstake precedence over any self-interest of a director, officer, or controlling shareholder that is not shared by the stockholders generally.” Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993).
Also, "”n dealing with corporate assets [the corporate officer] was required to act in the best interests of the corporation and he was prohibited from using either his position or the corporation's funds for his private gain.” Levin v. Levin, 43 Md. App. 380, 390, 405 A.2d 770 (1979).
A court, recently opining on ERISA’s fiduciary duty of loyalty, stated: “ERISA imposes a duty of loyalty on fiduciaries. Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.), cert. denied, 459 U.S. 1069, 74 L. Ed. 2d 631, 103 S. Ct. 488 (1982) (Friendly, J.). A trustee violates his duty of loyalty when he enters into substantial competition with the interests of trust beneficiaries. Restatement (Second) of Trusts, § 170, comment p … under the law of trusts, a fiduciary is generally prohibited, not just from acting disloyally, but also from assuming a position in which a temptation to act contrary to the best interests of the beneficiaries is likely to arise. Grynberg at 1319; 2 Scott on Trusts § 170, pp. 1297-98 (1967).” Salovaara v. Eckert, 94 Civ. 3430 (KMW), U.S. D.C. SDNY, 1996 U.S. Dist. LEXIS 323 (1996).
In describing an attorney’s fiduciary duty of loyalty to a client, a court stated: “public policy requires that he not be subjected to any possible conflict of interest which may deter him from determining the best interests of the client … a client's right to the undivided loyalty of his or her attorneys must be protected … The duty of both the associate and the successor attorney is the same: to serve the best interests of the client." Beck v. Wecht, No. S099665, Supreme Court Of California, 28 Cal. 4th 289; 48 P.3d 417; 121 Cal. Rptr. 2d 384; 2002 Cal. LEXIS 4197; 2002 Cal. Daily Op. Service 5812; 2002 Daily Journal DAR 7326 (2002).
Numerous law review articles and academic texts also reflect on the fiduciary’s obligation to act in the client’s (entrustor’s) “best interests.”
“Tracing this doctrine back into the womb of equity, whence it sprang, the foundation becomes plain. Wherever one man or a group of men entrusted another man or group with the management of property, the second group became fiduciaries. As such they were obliged to act conscionably, which meant infidelity to the interests of the persons whose wealth they had undertaken to handle. In this respect, the corporation stands on precisely the same footing as the common-law trust.” Adolf A. Berle, Jr. & Gardiner C. Means, The Modern Corporation and Private Property 336 (1939).
“The underlying purpose of the duty of loyalty, which the sole interest rule is meant to serve, is to advance the best interest of the beneficiaries … There can be no quibble with the core policy that motivates the duty of loyalty. Any conflict of interest in trust administration, that is, any opportunity for the trustee to benefit personally from the trust, is potentially harmful to the beneficiary. The danger, according to the treatise writer Bogert, is that a trustee ‘placed under temptation’ will allow ‘selfishness’ to prevail over the duty to benefit the beneficiaries. ‘Between two conflicting interests,’ said the Illinois Supreme Court in an oft-quoted opinion dating from 1844, ‘it is easy to foresee, and all experience has shown, whose interests will be neglected and sacrificed’ …
“The law is accustomed to requiring that attorneys zealously pursue their clients' interests and that they not indulge interests that may conflict with those of a particular client without first disclosing the potential conflict to the client and receiving the client's approval. There are some conflicts that cannot be overcome by the client's permission where the conflicted attorney would have to avoid the conflict entirely or quit the representation of the client. Law firms vigorously monitor potential conflicts between attorneys and clients. The rules of professional responsibility go to great lengths to define the appropriate standard of conduct for attorneys and describe what constitutes a conflict and how an attorney, law firm, and client should handle it. These strictly enforced standards of conduct cover every facet of the attorney-client relationship and leave very little to chance in a court's ex post determination of whether an attorney has breached her fiduciary duties. While fiduciary duties may apply to the relationship and zealous advocacy is clearly required, the obligation an attorney owes a client is not left to vague, unpredictable ex post judicial review. It is quite thoroughly described in codes of conduct that have grown ever more complete and sophisticated over time.” John H. Langbein, Questioning the Trust Law Duty of Loyalty: Sole Interest or Best Interest?, 114 Yale L.J. 929 (March 2005).
We also see the term “best interests” used to describe the legal obligations arising for those who provide personalized investment advice to retail customers. On January 22, 2011, the SEC's Staff, fulfilling the mandate under § 913 of the Dodd-Frank Act, released its Study on the regulation of broker-dealers and investment advisers. The overarching recommendation made in the Study is that the SEC should adopt a uniform fiduciary standard for investment advisers and broker-dealers that is no less stringent than the standard under the Advisers Act. Specifically, the Staff recommended the following: “[T]he standard of conduct for all brokers, dealers, and investment advisers, when providing personalized investment advice about securities to retail customers (and such other customers as the Commission may by rule provide), shall be to act in the best interest of the customer without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice.” EC Staff, Study on Investment Advisers and Broker-Dealers ii (2011) [hereinafter SEC Staff Study], available at http://www.sec.gov/news/studies/2011/913studyfinal.pdf.
Understanding the Bona Fide Fiduciary Duty of Loyalty
Under the fiduciary duty of loyalty, as developed over centuries of case law, there is a duty to not possess a conflict of interest, and to not profit off of the client. In other words, fiduciaries owe the obligation to their client to not be in a position where there is a substantial possibility of conflict between self-interest and duty. This is called the “no-conflict” rule, derived from English law. Fiduciaries also possess the obligation not to derive unauthorized profits from the fiduciary position. This is called the “no profit” rule, also derived from English law.
If a conflict of interest is not avoided and does exist, mere disclosure to the client of the conflict, followed by mere consent by a client to the breach of the fiduciary obligation, does not suffice. Under the law, we state that this is not sufficient to create either a “waiver” of the client or to “estop” the client from pursuing a claim for breach of fiduciary duty. If this were the case, fiduciary obligations – even core obligations of the fiduciary – would be easily subject to waiver. Instead, to create an estoppel situation, preventing the client from later challenging the validity of the transaction that occurred, the fiduciary is required to undertake a series of steps.
First, disclosure of all material facts to the client must occur. [For some commentators on the fiduciary obligations of investment advisers, this is all that is required. Often this erroneous conclusion is derived from wishful misinterpretations of the landmark decision of SEC v. Capital Gains Research Bureau.]
Second, the disclosure must be affirmatively made and timely undertaken. In a fiduciary relationship, the client’s “duty of inquiry” and the client’s “duty to read” are limited; the burden of ensuring disclosure is received is largely borne by the fiduciary. Disclosure must also occur in advance of the contemplated transaction. For example, when a conflict of interest is present, disclosure via receipt of a prospectus following a transaction is insufficient, as this does not constitute timely disclosure.
Third, the disclosure must lead to the client’s understanding. The fiduciary must be aware of the client’s capacity to understand, and match the extent and form of the disclosure to the client’s knowledge base and cognitive abilities.
Fourth, the intelligent, independent and informed consent of the client must be affirmatively secured. Silence is not consent. Also, consent cannot be obtained through coercion nor sales pressure.
Fifth, at all times, the transaction must be substantively fair to the client. If an alternative exists which would result in a more favorable outcome to the client, this would be a material fact which would be required to be disclosed, and a client who truly understands the situation would likely never gratuitously make a gift to the advisor where the client would be, in essence, harmed.
These requirements of the common law are derived from judicial decisions over hundreds of years. While these requirements are strict, they are intentionally so. The strict fiduciary duties aim to prevent or protect against the disease of temptation.
The provision of investment advice to a client involve decisions that, if made improperly, clearly can jeopardize that client’s financial future. In the area of investments, the client possesses far inferior knowledge compared to the knowledge of the fiduciary. The inherent complexity of the modern securities markets, combined with the need for investors to properly manage investment portfolios over decades as a means of ensuring their retirement security, makes reliance upon another for personalized investment advice essential. Nor can financial literacy efforts overcome this need for reliance. As observed by the Financial Planning Association of Australia Limited, “The average person will no more become an instant financial planner simply because of direct access to products and information than they will a doctor, lawyer or accountant.”
This is closely analogous to the attorney-client relationship, which also treats the maintenance of conflicts of interest severely. “Conflicts of interest are broadly condemned throughout the legal profession because of their potential to interfere with the undivided loyalty that a lawyer owes to his or her client. The representation of adverse interests can likewise quickly erode the bond of trust between the attorney and his or her client.”
FINRA’s “Best Interest” Standard Fails to Meet the Fiduciary Duty of Loyalty
While much of FINRA’s proposal is general, including its apparent requirement to “avoid conflicts of interest,” upon close inspection, FINRA’s proposal to the DOL that a new “best interest” standard be adopted is but an attempt to undermine fiduciary law. This is evidenced most in FINRA’s requirements on how a conflict of interest is to be managed, when it is not avoided.
For example, under a bona fide fiduciary standard, all compensation of the fiduciary must be disclosed to the client, and must be reasonable. Under FINRA’s proposed standard there is annual disclosure of a product’s fees and expenses, but not of the compensation of the broker-dealer firm.
Under a true fiduciary standard of conduct, when a conflict of interest is unavoidable, the fiduciary must ensure client understanding of the conflict of interest. Yet, under FINRA’s proposal, it appears only that the broker-dealer must “inform” the client of the conflict. Moreover, broker-dealers have long advocated in opposing fiduciary standards mere “casual disclosures” of conflicts of interest, such as “our interests might not be aligned with yours,” rather than the full and frank disclosure required of a fiduciary.
Nor is there is any requirement in FINRA’s proposal that the client’s consent be “informed” – a key requirement of fiduciary law before client waiver of a conflict of interest can take place. Nor is there a requirement that the client provide informed consent prior to each and every transaction. Rather, FINRA would only require brokers to “obtain client consent” to conflicts of interest. Such consent, often given with little or no understanding by the customer of the ramifications to the client of the broker’s conflict of interest, does not meet the “informed consent” requirement of fiduciary law. It is fundamental that no client would ever provide informed consent to be harmed.
Finally, FINRA’s proposed “best interest” standard does not require, even in the presence of informed consent, that the transaction remain substantively fair to the client (as fiduciary law requires). Rather, there is only a requirement that the transaction be in accord with the client’s “best interest.”
FINRA’s new “best interests” standard remains ill-defined and subject to much interpretation. While, it appears that FINRA’s “best interest” proposal would permit broker-dealers to still represent product manufacturers; the broker-dealer firm would still function as a “seller’s representative” rather than a “buyer’s representative” as a true fiduciary would. Under FINRA’s “best interest” proposal it appears that broker-dealers would easily be able to place their own interests above that of the client.
While FINRA chides the U.S. Department of Labor, in FINRA’s July 17, 2017 comment letter, for imposing “a best interest standard on broker-dealers that differs significantly from the fiduciary standard applicable to investment advisers registered under the federal and state securities laws,” the reality is that it is FINRA’s proposal (and an earlier proposal advanced by SIFMA, of the same nature) that fails to survive close scrutiny.
FINRA’s “best interest” proposal, if it were to be adopted, would significantly weaken long-standing fiduciary principles. It would mislead our fellow Americans to believe that their best interests were paramount when, in fact, the principle of caveat emptor would still apply.
Caveat Emptor Still Applies with BDs
Mr. Ketchum also stated in 2015 that recent “depictions of the present environment as providing ‘caveat emptor’ freedom to broker-dealers to place investors in any investment that benefits the firm financially with no disclosure of their financial incentives or the risks of the product, are simply not true.” Yet, I have personally seen, over and over again, many a registered representative of a broker-dealer firm sell variable annuities in very large transaction amounts, and some have bragged to me of their avoidance of the breakpoint discounts generally applicable to mutual funds but not to many variable annuities at present. And, I have also examined many investment portfolios when it is obvious that the broker’s recommendations of mutual funds, from different fund families, were structured in a way to avoid certain breakpoint discounts.
The fact of the matter is that, despite Mr. Ketchum’s assertion, customers of brokers need to be on guard and protect themselves from brokers who provide investment advice. The doctrine of caveat emptor still clearly applies to broker-customer relationships.
It is clear that, consciously or unconsciously, the economic self-interests of many brokerage firms and many registered representatives often profoundly affect the recommendations made to customers. Despite Mr. Ketchum’s statement, it is also clear that brokers are able to place investors in investments that benefit the financial interests of the broker-dealer firm and/or its registered representatives.
For over seven decades FINRA (formerly called NASD) has refused to recognize in its rules of conduct that brokers, when in a relationship of trust and confidence with their customers, possess broad fiduciary duties to such customers. These fiduciary duties act to restrict the conduct of the fiduciary.
Now, on the eve of DOL rule-making, FINRA proposes not a fiduciary standard - but rather an abomination of the "best interests" fiduciary duty of loyalty. This new, perverse “best interests” standard that would reverse centuries of understanding for that legal term. In making its proposal, FINRA seeks to undermine established fiduciary law in a misleading effort to protect the interests of its broker-dealer members, rather than the interests of the American investing public.
Judge Cardozo in Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928) famously wrote: “Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the ‘disintegrating erosion' of particular exceptions. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.”
Fiduciaries – whether attorneys, doctors, trustees, corporate directors, or otherwise – should resist any attempt to erode the fiduciary duty of loyalty. We need to stand up to Wall Street and the insurance companies and say, "This has gone on long enough. We are tired of you taking advantage at every opportunity of the American people." Instead, we need the fiduciary standard of conduct, to restrain the conduct of Wall Street, and to act as a restraint upon its greed.
FINRA continues its abysmal failure to properly advance the standards of its members, and in so doing fails to safeguard consumer interests while favoring the commercial interests of its own broker-dealer member firms. FINRA's utter failure to protect consumers over many decades, augmented by its recent colossal failure in proposing a deceptive new "best interests" standard that would deceptively not be equivalent to a bona fide fiduciary duty of loyalty, is good cause for removing from FINRA its ability to regulate any market conduct. The U.S. Securities and Exchange Commission should act forthwith to remove FINRA's authority to protect consumers from brokers by removing its regulation of the market conduct of its broker-dealer firms and their registered representatives.
Ron A. Rhoades, JD, CFP® is an Assistant Professor of Finance and the Director of the Financial Planning Program in the Gordon Ford College of Business at Western Kentucky University. This article represents the personal views of the author, and does not necessarily represent the views of any institution, organization or firm with whom Ron A. Rhoades is associated.
 Walter Percy, The Moviegoer (New York: Ivy Books, 1960), pg. 6.
 Senator Francis T. Maloney, Regulation of the Over-the-Counter Security Markets, Address at the California Security Dealers Association, Investment Bankers Association, National Association of Securities Dealers 2 (Aug. 22, 1939) (transcript available in the SEC Library at 11 SEC Speeches, 1934-61).
 “First, the best interest standard should make clear that customer interests come first and that any remaining conflicts must be knowingly consented to by the customer … Second, any such proposal should include a requirement that financial firms establish carefully designed and articulated structures to manage conflicts of interest that arise in their businesses. This would include creating an ongoing process to specifically identify any conflicts that might impact their provision of fair and effective investment advice and develop written supervisory procedures to address how those conflicts would be eliminated or managed. Third, any best interest standard should also begin by applying know-your-customer and suitability standards as ‘belt and suspenders’ backstops, similar to what is contained in FINRA’s rules. Fourth, there should be more effective disclosure provided to investors. Broker-dealers should be required to provide customers an ADV-like document annually that provides clear, plain English descriptions of the conflicts they may have and an explanation of all product and administrative fees. Moreover, the firms’ representatives should provide either point of sale disclosures regarding relevant conflict, risk and fee issues relating to a recommendation, or, in the alternative, follow up any discussion involving a recommendation with a written or email communication that memorializes the conversation by describing the key contractual terms and fees entailed in the product. Such communication, including a balanced explanation of the benefits of the product or strategy recommended as well as the potential adverse risk scenarios that the customer should be aware of, would be critical to ensure that the investor had a clear understanding of the benefits, risks and costs of the recommended investment.”
 Section 913(g) of The Dodd Frank Act, “STANDARD OF CONDUCT,” provides in pertinent part: ‘‘(1) IN GENERAL.—The Commission may promulgate rules to provide that the standard of conduct for all brokers, dealers, and investment advisers, when providing personalized investment advice about securities to retail customers (and such other customers as the Commission may by rule provide), shall be to act in the best interest of the customer without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice.”
 FINRA’s 2016 Regulatory and Examination Priorities Letter (Jan. 5, 2016), at p.1.
 Id., at p.2.
 FINRA Rule 2111 (Suitability) Frequently Asked Questions 7.1., page 11, providing:
Q7.1. Regulatory Notice 11-02 and a recent SEC staff study on investment adviser and broker-dealer sales-practice obligations cite cases holding that brokers' recommendations must be consistent with their customers' "best interests." What does it mean to act in a customer's best interests? [Notice 12-25 (FAQ 1)]
A7.1. In interpreting FINRA's suitability rule, numerous cases explicitly state that "a broker's recommendations must be consistent with his customers' best interests." The suitability requirement that a broker make only those recommendations that are consistent with the customer's best interests prohibits a broker from placing his or her interests ahead of the customer's interests. Examples of instances where FINRA and the SEC have found brokers in violation of the suitability rule by placing their interests ahead of customers' interests include the following:
· A broker whose motivation for recommending one product over another was to receive larger commissions.
· A broker whose mutual fund recommendations were "designed 'to maximize his commissions rather than to establish an appropriate portfolio' for his customers."
· A broker who recommended "that his customers purchase promissory notes to give him money to use in his business."
· A broker who sought to increase his commissions by recommending that customers use margin so that they could purchase larger numbers of securities.
· A broker who recommended new issues being pushed by his firm so that he could keep his job.
· A broker who recommended speculative securities that paid high commissions because he felt pressured by his firm to sell the securities.
The requirement that a broker's recommendation must be consistent with the customer's best interests does not obligate a broker to recommend the "least expensive" security or investment strategy (however "least expensive" may be quantified), as long as the recommendation is suitable and the broker is not placing his or her interests ahead of the customer's interests. Some of the cases in which FINRA and the SEC have found that brokers placed their interests ahead of their customers' interests involved cost-related issues. The cost associated with a recommendation, however, ordinarily is only one of many important factors to consider when determining whether the subject security or investment strategy involving a security or securities is suitable.
The customer's investment profile, for example, is critical to the assessment, as are a host of product- or strategy-related factors in addition to cost, such as the product's or strategy's investment objectives, characteristics (including any special or unusual features), liquidity, risks and potential benefits, volatility and likely performance in a variety of market and economic conditions. These are all important considerations in analyzing the suitability of a particular recommendation, which is why the suitability rule and the concept that a broker's recommendation must be consistent with the customer's best interests are inextricably intertwined.”
 “[I]t appears that FINRA is not waiting for the SEC to implement Dodd-Frank fiduciary or regulatory harmonization rules. As attested by Rules 2090 and 2111, basic elements of fiduciary practices now are cropping up in broker-dealer regulation … for the most part, the new rules appear designed to move broker compliance along roughly parallel lines to traditional wealth management practices under the 1940 Act.” IMCA’s Legislative Intelligence (June 2012), p.1.
 FINRA, comment letter to the U.S. Department of Labor (July 17, 2016), available at http://www.dol.gov/ebsa/pdf/1210-AB32-2-00405.pdf.
 SIFMA, Proposed Best Interest of the Customer Standard for Broker-Dealers (June 2015), providing in pertinent part for a reformulation of FINRA’s suitability rule:
SIFMA’S Proposed Best Interests of the Customer Standard for Broker-Dealers. The following SIFMA mark-up of existing FINRA Rules is intended to be fairly streamlined and high-level in order to focus attention on, and promote discussion about, the core elements of a proposed best interests of the customer standard for broker-dealers. Missing from this treatment are, among other things, key details about how the standard would operate under various scenarios, and the content, timing and manner of disclosures and consents, if any, all of which are of critical significance to SIFMA’s members.
2111. Suitability The Best Interests of the Customer
a. A member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for in the best interests of the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile. A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation.
i. The best interests standard. A best interests recommendation shall:
1. Reflect the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person would exercise based on the customer’s investment profile (defined above). The sale of only proprietary or other limited range of products by the member shall not be considered a violation of this standard.
2. Appropriately disclose and manage investment-related fees. See Manage investment-related fees below.
3. Avoid, or otherwise appropriately manage, disclose, and obtain consents to, material conflicts of interest, and otherwise ensure that the recommendation is not materially compromised by such material conflicts. See Manage material conflicts of interest below.
ii. Manage investment-related fees. A member shall ensure that investment-related fees incurred by the customer from the member are reasonable, fair, and consistent with the customer’s best interests. Managing investment-related fees does not require recommending the least expensive alternative, nor should it interfere with making recommendations from among an array of services, securities and other investment products consistent with the customer’s investment profile.
iii. Manage material conflicts of interests. A member or associated person shall avoid, if practicable, and/or mitigate material conflicts of interest with the customer. A member or associated person shall disclose material conflicts of interest to the customer in a clear and concise manner designed to ensure that the customer understands the implications of the conflict. The customer shall be given the choice of whether or not to waive the conflict, and must provide consent, as provided in Rule 2260 (Disclosure). Notwithstanding the disclosure of, and customer consent to, any material conflict, a recommended transaction or investment strategy must nevertheless be in the best interests of the customer.
iv. Provide required disclosures. A member or associated person shall provide and/or otherwise make available to the customer, among other things: 1) account opening disclosure, 2) annual disclosure, and 3) webpage disclosure, as provided in Rule 2260 (Disclosure).
b. A member or associated person fulfills the customer-specific suitability obligation for an institutional account, as defined in Rule 4512(c), if (1) the member or associated person has a reasonable basis to believe that the institutional customer is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a security or securities and (2) the institutional customer affirmatively indicates that it is exercising independent judgment in evaluating the member’s or associated person’s recommendations. Where an institutional customer has delegated decisionmaking authority to an agent, such as an investment adviser or a bank trust department, these factors shall be applied to the agent.
a. Account opening disclosure. A member or associated person shall disclose to the customer, at or prior to the opening of the customer account, or prior to recommending a transaction or investment strategy, if earlier, the following:
• the type of relationships available from the broker-dealer and the standard of conduct that would apply to those relationships;
• the services that would be available as part of the relationships, and information about applicable direct and indirect investment-related, fees;
• material conflicts of interest that apply to these relationships, including material conflicts arising from compensation arrangements, proprietary products, underwritten new issues, types of principal transactions, and customer consents thereto; and
• disclosure about the background of the firm and its associated persons generally, including referring the customer to existing systems, such as FINRA’s BrokerCheck database.
b. Annual disclosure. A member shall disclose to the customer annually a good faith summary of investment-related fees incurred by the customer from the member or associated person with respect to all products and services provided during the prior year (or such shorter period as applicable).
c. Webpage disclosure. A member’s webpage shall provide disclosure that is concise, direct and in plain English, following a layered approach that provides supplemental information to the customer. A member’s webpage shall include access to all account opening disclosure. Paper disclosure shall be provided to customers that lack effective Internet access or that otherwise so request.
d. Customer consent. Customer consent to material conflicts of interest or for other purposes as appropriate may be provided at account opening.1 Existing customers with accounts established prior to the effective date of the best interests standard shall be deemed to have consented to the material conflicts of interest, if any, disclosed to the customer, upon continuing to accept or use account services.
e. Disclosure updates. Updates to disclosures, if necessary or appropriate, may be made through an annual notification that provides a website address where specific changes to a member’s disclosure are highlighted.
1 Customer consent to principal transactions, for example, could be provided at account opening.”
 Id. at p.5.
 Id. at p. 7.
 See, e.g., Bullard, Mercer and Wilson, Ryan, “Protecting Investors – Establishing the SEC Fiduciary Duty Standard,” AARP Public Policy Institute In Brief #191 (Sept. 2011) [“The suitability requirement is not as strong as a fiduciary duty. There is no requirement under the suitability rule to recommend the best product for the customer or to act in the best interest of the customer.” Id. at p.2. See also, e.g., PWC, Current developments for mutual fund audit committees (June 30, 2014), stating: “If the firm acts as an investment adviser to the customer, it has a heightened fiduciary duty, including … to ensure the financial advisor is recommending the best product for the customer.” PWC, at p.8. See also, e.g., Polina Demina, Brokers and Investment Advisers: An Economic Analysis, 113 Mich.L.Rev. 429 (Dec. 2014) [“Under the fiduciary standard, broker dealers [would] have an incentive—that is, avoiding the increased liability—to recommend the best product for the investor, not just a product that is suitable to his risk tolerance and objectives..” Id. at 455. See also, e.g., McMillan, (Canada) Insurance Committee Substantive Report 2015, available at http://www.mcmillan.ca/Files/185456_Insurance%20committee%20substantive%20report%202015%20Canada.pdf. [“non-life ‘brokers’ place business with many insurers and generally owe their duties to the consumer (as opposed to an employer/insurer). This would include the obligation to shop the market to find the best product for the customer.”’ Id. at Section 3.1.
 See, e.g. Arthur Laby, Fiduciary Obligations of Broker-Dealers, 55 Vill.L.Rev. 701, 733-4 (“Although brokers historically provided advice to their customers, advice rendered in the past was relatively less significant in the context of the overall relationship than it is today … A history of the Merrill Lynch firm explains that, in the early part of the twentieth century, many brokerage firms did not do much more than execution—their sales forces were primarily intermediaries arranging trades on secondary markets—and the information available to investors seeking advice was rather meager. Open a modern description of the activities of broker-dealers and advice often is paramount.”) (Citations omitted.)
 See, e.g., Note, A Proposal to Refine the Suitability Standard, 1 Brook.J.Corp.Fin.&Com.L. 231 [“The current standard for determining “unsuitability” is subjective: Whether the broker reasonably believed his recommendation to be suitable for his client when he made it. The enormous quantity of claims suggests that such a subjective standard may not be satisfactory ….”] Id. [“The subjective standard of reasonable belief of the broker is used to determine whether a recommendation was suitable … Reasonable belief is too subjective and amorphous a standard in determining the unsuitability of investment recommendations.”] Id. at 243.
 “The present problem for the industry is … in part because securities industry arbitration panels normally do not render reasoned decisions in writing, in part because an approach of equitable fairness rather than strict legal doctrine drives these arbitration panels, and in part because there is no effective right of appeal from the decisions of arbitration panels … ‘Ultimately, suitability rules require only good faith assessments by brokers,’ but subjective, amorphous standards lead to uncertainty and to inefficient application of the law. Similarly, it is difficult and expensive for the industry, and its customers, to apply and expect a standard which is so amorphous.”
 FINRA Comment Letter to DOL, July 17, 2015, at p. 3.
 FINRA Comment Letter to U.S. Securities and Exchange Commission, July 11, 2005, re: “Certain Broker-Dealers Deemed Not to Be Investment Advisers,” Securities Exchange Act
Release No. 40980; File No. S7-25-99, at p.2.
 Id. at p.5.
 Hearing, video record at 1:14.
 Id. video record at 1:44.
 Id., video record at 2:10.
 James J. Angel, Ph.D., CFA and Douglas McCabe Ph.D., “Ethical Standards for Stockbrokers: Fiduciary or Suitability?” (Sept. 30, 2010). Available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1686756.
 Robert Prentice, “Contract-Based Defenses In Securities Fraud Litigation: A Behavioral Analysis,” 2003 U.Ill.L.Rev. 337, 343-4 (2003), citing Jon D. Hanson & Douglas A. Kysar, “Taking Behavioralism Seriously: The Problem of Market Manipulation,” 74 N.Y.U.L.REV. 630 (1999) and citing Jon D. Hanson & Douglas A. Kysar, “Taking Behavioralism Seriously: Some Evidence of Market Manipulation,” 112 Harv.L.Rev. 1420 (1999).
 Stephen J. Choi and A.C. Pritchard, “Behavioral Economics and the SEC” (2003), at p.18.
 For years it has been known that that investors do not read disclosure documents. See, generally, Homer Kripke, The SEC and Corporate Disclosure: Regulation In Search Of A Purpose (1979); Homer Kripke, The Myth of the Informed Layman, 28 Bus.Law. 631 (1973). See also Baruch Lev & Meiring de Villiers, Stock Price Crashes and 10b-5 Damages: A Legal, Economic, and Policy Analysis, 47 Stan. L. Rev. 7, 19 (1994) (“[M]ost investors do not read, let alone thoroughly analyze, financial statements, prospectuses, or other corporate disclosures ….”); Kenneth B. Firtel, Note, “Plain English: A Reappraisal of the Intended Audience of Disclosure Under the Securities Act of 1933, 72 S. Cal. L. Rev. 851, 870 (1999) (“[T]he average investor does not read the prospectus ….”).
 For an overview of various individual investor bias such as bounded irrationality, rational ignorance, overoptimism, overconfidence, the false consensus effect, insensivity to the source of information, the fact that oral communications trump written communications, and other heuristics and bias, see Robert Prentice, “Whither Securities Regulation? Some Behavioral Observations Regarding Proposals for its Future,” 51 Duke L. J. 1397 (2002).
 Parades at p.3.
 Jill E. Fisch, “Regulatory Responses To Investor Irrationality: The Case Of The Research Analyst,” 10 Lewis & Clark L. Rev. 57, 74-83 (2006).
 Steven L. Schwarcz, Rethinking The Disclosure Paradigm In A World Of Complexity, Univ.Ill.L.R. Vol. 2004, p.1, 7 (2004), citing “Disclosure To Investors: A Reappraisal Of Federal Administrative Policies Under The ‘33 and ‘34 Acts (The Wheat Report),“ 52 (1969); accord William O. Douglas, “Protecting the Investor,” 23 YALE REV. 521, 524 (1934).
 See, e.g., Carter v. Harris, 25 Va. 199, 204; (Va. 826). The U.S. common law is derived from the laws of England, which law continues to influence the development of U.S. law. In the cited early case, the English court stated: “the rule [prohibiting one from acting as both fiduciary and seller] was founded in reason and nature, and prevailed wherever any well-regulated administration of justice was known; that the disability rested on the principle which dictated that a person cannot be both judge and party, and serve two masters; that he who is intrusted with the interest of others, cannot be allowed to make the business an object to himself, because, from the frailty of human nature, one who has power will be too readily seized with an inclination to serve his own interest at the expense of those for whom he is intrusted; that the danger of temptation does, out of the mere necessity of the case, work a disqualification " nothing less than incapacity being able to shut the door against temptation, when the danger is imminent and the security against discovery great; that the wise policy of the law had therefore put the sting of disability into the temptation, as a defensive weapon against the strength of the danger which lies in the situation; that the parts which the buyer and seller have to act, stand in direct opposition to each other in point of interest; and this conflict of interest is the rock, for shunning which the disability has obtained its force, by making that person who has the one part intrusted to him, incapable of acting on the other side.”
 Wormley v. Wormley, 21 U.S. 421; 5 L. Ed. 651; 1823 U.S. LEXIS 290; 8 Wheat. 421 (1823).
 Michoud v. Girod, 45 U.S. 503; 11 L. Ed. 1076; 1846 U.S. LEXIS 412; 4 HOW 503 (1846).
 SEC v. Capital Gains Research Bureau, 375 U.S. 180; 84 S. Ct. 275; 11 L. Ed. 2d 237; 1963 U.S. LEXIS 2446 (1963) (citations omitted).
 (Smith, Wealth of Nations, p.748, see also pp. 734-35.)
 Shearmur, Jeremy and Klein, Daniel B. B., “Good Conduct in a Great Society: Adam Smith and the Role of Reputation.” D.B Klein, Reputation: Studies In The Voluntary Elicitation Of Good Conduct, pp. 29-45, University of Michigan Press, 1997.)
 “The legal system provides for only two levels of trust and their differentiation is necessary for them to be useful tools for parties setting up relationships ... In essence, legal systems provide only two levels of loyalty between contracting parties, arm's-length and fiduciary relationships. The difference in the degree of trust that the two levels of loyalty entitle the parties is dramatic. Fiduciary relations impose a pure duty of loyalty, according to which the fiduciary must place the interests of his employer before his own. Arm's-length relations, by contrast, allow exploitation within the parameters of good faith.” Georgakopoulos, Nicholas L., “Meinhard v. Salmon and the Economics of Honor” (April 1998, revised Feb. 8, 1999). Available at SSRN: http://ssrn.com/abstract=81788 or DOI: 10.2139/ssrn.81788.
 See, for example, Hartman v. McInnis, No. 2006-CA-00641-SCT (Miss. 11/29/2007) ([O]rdinarily a bank does not owe a fiduciary duty to its debtors and obligors under the UCC … the power to foreclose on a security interest does not, without more, create a fiduciary relationship … a mortgagee-mortgagor relationship is not a fiduciary one as a matter of law.”). “[T]he significant weight of authority holds that franchise agreements do not give rise to fiduciary ... relationships between the parties." GNC Franchising, Inc. v. O'Brien, 443 F.Supp.2d 737, 755 (W.D. Pa., 2006).
 Caveat emptor is Latin for ‘Let the buyer beware.’ In its purest form at common law, in the absence of fraud, misrepresentation or active concealment, the seller is under no duty to disclose any defect; it therefore provides a safe harbor to a seller to not to disclose any information to a buyer. See Alex M. Johnson, Jr., “An Economic Analysis Of The Duty To Disclose Information: Lessons Learned From The Caveat Emptor Doctrine” (2007), available at
http://law.bepress.com/cgi/viewcontent.cgi?article=9154&context=expresso. It means that a customer should be cautious and alert to the possibility of being cheated. The doctrine supports the idea that buyers take responsibility for the condition of the items they purchase and should examine them before purchase. This is especially true for items that are not covered under any warranty. See, e.g. SEC v. Zandford, 535 U.S. 813 (2002).
 “When parties deal at arm's length the doctrine of caveat emptor applies, but the moment that the vendor makes a false statement of fact, and the falsity is not palpable to the purchaser, he has an undoubted right to implicitly rely upon it. That would indeed be a strange rule of law which, when the seller has successfully entrapped his victim by false statements, and was called to account in a court of justice for his deceit, would permit him to escape by urging the folly of his dupe was not suspecting that he (the seller) was a knave." Holcomb v. Zinke, 365 N.W.2d 507, 511 (N.D., 1985).
 It is well settled that fraud may occur without the making of a false statement. Dvorak v. Dvorak, 329 N.W.2d 868 (N.D.1983). The suppression of a material fact, which a party is bound in good faith to disclose, is equivalent to a false representation. Verry v. Murphy, 163 N.W.2d 721 (N.D.1969).
 Meinhard v Salmon, 249 NY 458, 464 (N.Y. 1928).
 In re Auto Specialties Mfg. Co., 153 B.R. 457, 488 (Bankr. W.D. Mich., 1993) (Courts have described the standard of conduct to which a non-fiduciary will be held in the vernacular as the ‘morals of the marketplace’”).
 Von Noy v. State Farm Mutual Automobile Insurance Company, 2001 WA 80 (WA, 2001) (J. Talmadge, concurring opinion).
 Mark Egan, Brokers vs. Retail Investors: Conflicting Interests and Dominated Products (Sept. 16, 2014), available at http://faculty.chicagobooth.edu/workshops/financelunch/pdf/Brokersvsretailinvestors_Egan.pdf.
 “An essential feature and consequence of a fiduciary relationship is that the fiduciary becomes bound to act in the interests of her beneficiary and not of herself.” In re Prudential Ins. Co. of America Sales Prac., 975 F.Supp. 584, 616 (D.N.J., 1996). See also SEC’s “Staff Study on Investment Advisers and Broker-Dealers - As Required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act” (Jan. 21, 2011), p.22 (available at http://sec.gov/news/studies/2011/913studyfinal.pdf), citing Transamerica Mortgage Advisors, Inc., 444 U.S. 11, 17 (1979). [“The duty of loyalty requires an adviser to serve the best interests of its clients, which includes an obligation not to subordinate the clients’ interests to its own.”]
 In the Matter of Dawson-Samberg Capital Management, Inc., now known as Dawson-Giammalva Capital Management, Inc. and Judith A. Mack, Advisers Act Release No. 1889 (August 3, 2000), citing SEC v. Capital Gains Research Bureau, 375 U.S. at 191-92.
 See Commission Guidance Regarding the Duties and Responsibilities of Investment Company Boards of Directors with Respect to Investment Adviser Portfolio Trading Practices, Release Nos. 34-58264; IC-28345 (July 30, 2008), at 23: “Second, investment advisers, as fiduciaries, generally are prohibited from receiving any benefit from the use of fund assets ….”
 “Avoidance is perhaps the best solution to conflict situations. Persons having a duty to exercise judgment in the interest of another must avoid situations in which their interests pose an actual or potential threat to the reliability of their judgment. Although avoidance of conflict situations is an important duty of decision-makers, a flat prescription to avoid all conflicts of interest is not only mistaken, but also unworkable. On the one hand, not all conflicts of interest are avoidable. Some conflict situations are embedded in the relation, while others occur independently of decision-maker’s will.” Fiduciary Duties and Conflicts of Interest: An Inter-Disciplinary Approach (2005), at p.20, available at http://eale.org/content/uploads/2015/08/fiduciary-duties-and-conflicts-of-interestaugust05.pdf.
 “[D]isclosure is an effective response if it does not affect the decision-maker’s judgment process and if the beneficiary is able to correct adequately for that biasing influence. Psychological research shows that neither of these conditions may be met. Sometimes both parties may be worse off following disclosure.” Id., citing Daylian M. Cain, George Loewenstein, and Don A. Moore, “The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest” (2005) 34 Journal of Legal Studies 1 at 3.
 Disclosure, in and of itself, does not negate a fiduciary’s duties to his or her client. As stated in an SEC No-Action Letter: “We do not agree that an investment adviser may have interests in a transaction and that his fiduciary obligation toward his client is discharged so long as the adviser makes complete disclosure of the nature and extent of his interest. While section 206(3) of the [Advisers Act] requires disclosure of such interest and the client's consent to enter into the transaction with knowledge of such interest, the adviser's fiduciary duties are not discharged merely by such disclosure and consent.” Rocky Mountain Financial Planning, Inc. (pub. avail. March 28, 1983). [Emphasis added.]
 As stated in an early decision by the U.S. Securities and Exchange Commission: “[We] may point out that no hard and fast rule can be set down as to an appropriate method for registrant to disclose the fact that she proposes to deal on her own account. The method and extent of disclosure depends upon the particular client involved. The investor who is not familiar with the practices of the securities business requires a more extensive explanation than the informed investor. The explanation must be such, however, that the particular client is clearly advised and understands before the completion of each transaction that registrant proposes to sell her own securities.” [Emphasis added.] In re the Matter of Arleen Hughes, SEC Release No. 4048 (1948).
The burden of affirmative disclosure rests with the professional advisor; constructive notice is insufficient. See also British Airways, PLC v. Port Authority of N.Y. and N.J., 862 F.Supp. 889, 900 (E.D.N.Y.1994) (stating that the burden is on the client's attorney to fully inform and obtain consent from the client); Kabi Pharmacia AB v. Alcon Surgical, Inc., 803 F.Supp. 957, 963 (D.Del.1992) (stating that evidence of the client's constructive knowledge of a conflict would not be sufficient to satisfy the attorney's consultation duty); Manoir-Electroalloys Corp. v. Amalloy Corp., 711 F.Supp. 188, 195 (D.N.J.1989) ("Constructive notice of the pertinent facts is not sufficient."). A client of a fiduciary is not responsible for recognizing the conflict and stating his or her lack of consent in order to avoid waiver. Manoir-Electroalloys, 711 F.Supp. at 195.
The duty to disclose is an affirmative one and rests with the advisor alone. Clients do not generally possess a duty of inquiry. “The [SEC} Staff believes that it is the firm’s responsibility—not the customers’—to reasonably ensure that any material conflicts of interest are fully, fairly and clearly disclosed so that investors may fully understand them.” See, e.g., SEC’s “Staff Study on Investment Advisers and Broker-Dealers - As Required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act” (Jan. 21, 2011), p.117.
 See, e.g., Julia Smith, Out with “TCF” and in with “fiduciary”?, Butterworths Journal of International Banking and Financial Law (June 2012), P.344 [U.K.] [“In order to obtain B’s fully informed consent: A must make full and frank disclosure of all material facts which might affect B’s consent (New Zealand Netherlands Society Oranje Inc v Kuys  1 WLR 1126 at 1132) and the extent of disclosure required depends upon the sophistication and intelligence of B (Farah Construction Pty Ltd v Say-Dee Pty Ltd  HCA 22 at  to ). A must disclose the nature as well as the existence of the conflict (Wrexham Assoc Football Club Ltd v Crucialmove Ltd  BCC 139 at ).] The burden of establishing informed
consent lies on the fiduciary (Cobbetts LLP v Hodge  EWHC 786).
Consent is only informed if the client has the ability to fully understand and evaluate the information. For example, many complex products (such as CMOs, structured products, options, security futures, margin trading strategies, alternative investments and the like) are appropriate only for sophisticated and experienced investors. It is not sufficient for a firm or an investment professional to make full disclosure of potential conflicts of interest with respect to such products. The firm and the investment professional must make a reasonable judgment that the client is fully able to understand and evaluate the product and the potential conflicts of interest that the transaction presents. Fiduciary law reposes this burden – to ensure client understanding - on the advisor / fiduciary. It is not the client’s responsibility.
 The consent of the client must be “intelligent, independent and informed.” Generally, “fiduciary law protects the [client] by obligating the fiduciary to disclose all material facts, requiring an intelligent, independent consent from the [client], a substantively fair arrangement, or both.” Frankel, Tamar, Fiduciary Law, 71 Calif. L. Rev. 795 (1983). [Emphasis added.]
 There must be no coercion for the informed consent to be effective. The “voluntariness of an apparent consent to an unfair transaction could be a lingering suspicion that generally, when entrustors consent to waive fiduciary duties (especially if they do not receive value in return) the transformation to a contract mode from a fiduciary mode was not fully achieved. Entrustors, like all people, are not always quick to recognize role changes, and they may continue to rely on their fiduciaries, even if warned not to do so.” Tamar Frankel, Fiduciary Duties as Default Rules, 74 Or. L. Rev. 1209.
 See, e.g., Sitkoff, Robert H., The Fiduciary Obligations of Financial Advisors under the law of Agency, available at http://www.thefiduciaryinstitute.org/wp-content/uploads/2013/07/Robert-H-Sitkoff.pdf [“The common law of agency imposes fiduciary duties of loyalty, care, and a host of subsidiary rules that reinforce and give meaning to the broad standards of loyalty and care as applied to specific circumstances ….”] See also, e.g., See Restatement (Third) of Agency §8.06 & cmts. b, c (2006).
 The procedures for resolving conflicts of interest vary depending upon the nature of the fiduciary relationship. For example, in the context of business partnerships, contracting out of certain fiduciary obligations might be permitted, as both parties are usually believed to be sophisticated (or, at least, wise enough to secure legal counsel to assist in the negotiation of partnership agreements). An employee is an agent (fiduciary) to his or her employer, yet it is the employer – not the fiduciary – in such instance who likely possesses the greater knowledge and sophistication; hence, notice to the employer of conflicts of interest the employee may possess may be all that is required. In contrast, the fiduciary duty is applied much more strictly when the knowledge and expertise of the parties is usually vastly different, such as in the case of a trustee and the beneficiary of the trust. Contrasted with trustees, the fiduciary duty of loyalty is required somewhat less strictly when the fiduciary is an attorney or investment adviser; but the application of fiduciary duties is much more stringent than in the case of business partners or employees acting in fiduciary capacities. “Although one can identify common core principles of fiduciary obligation, these principles apply with greater or lesser force in different contexts involving different types of parties and relationships.” Deborah A. DeMott, Beyond Metaphor: An Analysis of Fiduciary Obligation, Duke L.J. 879 (1988).
 Submission to the Financial System Inquiry by the Financial Planning Association of Australia Limited,” December 1996.
 See, e.g., Julia Smith, Out with “TCF” and in with “fiduciary”?, Butterworths Journal of International Banking and Financial Law (June 2012), P.344 [U.K.] [“On 23 February 2012, the FSCP proposed an amendment to the Financial Services Bill because: “Customers of banks should be owed the same fiduciary duty as those seeking the advice of a lawyer or an MP, with providers prohibited from profiting from conflicts of interest at the expense of their customers…The new Financial Conduct Authority (FCA) should be given powers to make rules to ensure that the industry would have to take their customers’ interests into account when designing products and providing advice.”]
 Matthew R. Henderson, Chapter 7, “Breach of Fiduciary Duty,” Attorneys Legal Liability (2012), at p.7-8.
 Any disclosure, by a fiduciary, must be full and frank: “If dual interests are to be served, the disclosure to be effective must lay bare the truth, without ambiguity or reservation, in all its stark significance.” See “Will the Investment Company and Investment Advisory Industry Win an Academy Award?” remarks of Kathryn B. McGrath, Director of the SEC Division of Investment Management, at the 1987 Mutual Funds and Investment Management Conference (McGrath Remarks), citing Scott, The Fiduciary Principle, 37 Calif. L. Rev. 539, 544 (1949).
 This last requirement looks not at the procedures undertaken, but rather casts view upon the transaction itself. It requires that, even if the previous steps are followed, at all times the proposed transaction must be and remain substantively fair to the client.
If an alternative exists which would result in a more favorable outcome to the client, this would be a material fact which would be required to be disclosed, and a client who truly understands the situation would likely never gratuitously make a gift to the advisor where the client would be, in essence, harmed. In the absence of integrity and fairness in a transaction between a fiduciary and the client or beneficiary, it will be set aside or held invalid. Matter of Gordon v. Bialystoker Center and Bikur Cholim, 45 N.Y. 2d 692, 698 (1978) (2006 WL 3016952 at *29). As stated by Professor Frankel, “if the bargain is highly unfair and unreasonable, the consent of the disadvantaged party is highly suspect. Experience demonstrates that people rarely agree to terms that are unfair and unreasonable with respect to their interests.” Frankel, Tamar, Fiduciary Duties as Default Rules, 74 Or. L. Rev. 1209.]
 FINRA Chair and CEO Richard Ketchum, May 27, 2015 address to broker-dealer firm executives gathered at the 2015 FINRA Annual Conference.
 “[I]t cannot be disputed that broker-dealers want to be perceived as providers of investment advice. In the 1990s, ‘brokerage firms began to use titles such as ‘adviser’ or ‘financial adviser’ for their broker-dealer registered representatives and even encouraged customers to think of the registered representative more as an adviser than a stockbroker.’ This rebranding is particularly significant because “[m]arketing methods used by financial services providers bear on the level of protection afforded by the federal securities laws’ … Where advice is intended to lure customers to the firm, it seems contradictory to say that a broker-dealer’s investment advice is ‘solely incidental’ to its brokerage activities.” Note, Defining a New Punctilio of an Honor: The Best Interest Standard For Broker-Dealers, 92 Boston U.L.Rev. 291, 308-9 (2012) (citations omitted).
 See “Without Fiduciary Protections, It’s ‘Buyer Beware’ for Investors,” Press Release issued by the Investment Adviser Association, et al., June 15, 2010.