Moving the Standards

Sent: Friday, September 11, 2009 5:26 PM
Subject: Global Market Update 9-14-09

Are your investments suitable? Or ideal?
That’s the question being asked these days in Congress. Because in the shake-up of financial regulations, Congress is reviewing how investors get advice.
Most stockbrokers are governed by a suitability standard. This requires that brokers offer advice that is appropriate for investors considering their situation. But if the broker knows of a similar investment that generates less income for him, he’s under no obligation to offer it. He just has to make sure that what he sells isn’t fraudulent and fits the buyer’s circumstances. In other words, let the buyer beware.
By contrast, fiduciaries are held to a different standard. They have to render advice as if they were the client. That means if they’re working with a mutual fund company and they find out that a similar one is available that costs less, they have to offer the cheaper one. Fiduciaries are required to put themselves in the client’s shoes.
Full disclosure here: I’m a fiduciary, and I work for a fiduciary firm. I think the world would be a better place if everybody acted like one. But I can see problems if Congress abolishes the suitability standard and replaces it with a fiduciary standard. For one thing, lawsuits would multiply like rabbits. But I also see the need to have a diverse way for people to get their investment advice. Competition usually leads to better results.
Appropriate investments are good. Ideal investments may be better. But its best when everyone has to compete.

Douglas Tengdin, CFA
Charter Trust Company

By | 2017-07-17T12:34:22+00:00 January 30th, 2014|Uncategorized|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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