Arbitration Attorneys: Brokerage Firms Cost Investors $17 Billion a Year

Econintersect:  A new report from the Public Investors Arbitration Bar Association (PIABA) charges that brokerage firms bilk investors out of an average of $17 billion dollars a year through abusive misrepresentation.  Nine major brokerages are named specifically:   Merrill Lynch, Fidelity Investments, Ameriprise, Morgan Stanley, Allstate Financial, and Charles Schwab.  This organization, PIABA,  is, according to their website, “an international bar association whose members represent investors in disputes with the securities industry“.  Their members are in an adversarial position with repsect to brokerages when they represent clients filing arbitrage complaints against their brokers.

The PIABA report focuses on what they say is the advertising by brokerages to recruit clients and the claims made by the brokerages when taken to arbitration.  The report offers this with regard to advertising (Econintersect added emphasis for quotes from third parties):

For example, Merrill Lynch advertises as follows: “It’s time for a financial strategy that puts your needs and priorities front and center.” Fidelity Investments appeals to investors with these words: “Acting in good faith and taking pride in getting things just right. The personal commitment each of us makes to go the extra mile for our customers and put their interests before our own is a big part of what has always made Fidelity a special place to work and do business.”

The report then says:

Nonetheless, Merrill Lynch, Fidelity, and all seven of the other brokerage firms using the fiduciary-like appeals in their advertisements eschew any such responsibility when it comes to rebuffing investor claims in arbitration.

The PIABA reports concludes (emphasis added in PIABA press release):

“there is a compelling case to be made for a ban on conflicted advice in order to protect investors. In the absence of such a standard, brokerage firms now engage in advertising that is clearly calculated to leave the false impression with investors that stockbrokers take the same fiduciary care as a doctor or a lawyer. But, while brokerage firms advertise as though they are trusted guardians of their clients’ best interests, they arbitrate any resulting disputes as though they are used car salesmen.”

The PIABA says they are strongly urging the both the U.S. DOL (Department of Labor) and the SEC (Securities and Exchange Commission) to take action on a rule which will establish fiduciary responsibilities on all brokers who make any representation about working in the customers’ interest.

The lead summary of the press release by PIABA says:

Advertising Like Doctors, Arbitrating Like Used Car Salesmen: “Huge Disconnect” Seen Between Brokerage Ad Claims and Tactics Used to Fight Aggrieved Investors; SEC and DOL Action Seen as Vital.

For the entire press release click on the page image below:

John Lounsbury

Sources:

• PIABA: Federal Action Needed To Stop U.S. Brokerage Firms Misleading Investors About Role As Fiduciaries, Which Firms Deny To Block Arbitration Claims (Press Release, PIABA, 25 March 2015)

• Report Slams Advisors for Marketing as Fiduciaries ( Advisor.ca, 26 March 2015)