Survey Casts Doubt Upon Ethics of Securities Advisors

Investors who want to ensure they have adequate savings for retirement or other expenses, like financing a child's college education, may enlist the expertise of a stockbroker or brokerage firm. For such individuals, investing money in publicly traded securities -- even products traditionally regarded as more conservative , like bonds -- may require a leap of faith. At a minimum, inexperienced investors are likely relying on financial advisors for guidance.

Lawmakers and courts alike often recognize the degree of trust that many investors place in their advisors. For that reason, securities law imposes a fiduciary duty upon advisors to disclose material facts pertinent to the investment and otherwise to act in investors' best interests. Advisors who fail to adequately communicate the risks of various investment options or who sell products based on the commissions to be earned rather than because the product is appropriate for the investor may be at risk for a securities fraud lawsuit or securities arbitration claim.

Although securities laws are intended to protect consumers, one might also hope that investment advisors would want to do right by their clients. Yet a recent survey of 250 professionals in the financial services industry -- including stockbrokers, investment advisers and bankers, traders, analysts and others -- suggests that such aspirations may be naïve. 

According to the results, almost one quarter of the survey participants had witnessed illegal or unethical conduct in their workplace. About the same percentage also admitted that they would participate in insider trading if it could earn them $10 million without getting caught. That percentage rose to 38 percent among professionals with fewer than ten years of professional experience. Finally, 40 percent of the survey respondents were unaware that the U.S. Securities and Exchange Commission established a reward program in 2011 for whistleblowers in cases where a penalty was collected.

Source: pbs.org, "Survey: One in Four on Wall Street Open to Insider Trading," Jason M. Breslow, July 16, 2013

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