CHANGING LEGAL AND ETHICAL CONCERNS WITHIN THE BROKER/ADVISOR-INVESTOR RELATIONSHIP.

This paper examines the changing relationship between investors and people who advise them, be they brokers or other professional advisors. Specifically, we trace the degree to which the duties that the advisor owes to the client-investor have expanded to include fiduciary ones. Black's law dictionary defines fiduciary duty as: a duty of utmost good faith, trust, confidence, and candor owed by a fiduciary (such as a lawyer or corporate officer) to the beneficiary (such as a lawyer's client or a shareholder); a duty to act with the highest degree of honesty and loyalty toward another person and in the best interests of the other person (such as the duty that one partner owes to another). Historically in most jurisdictions, the relationship between a broker and an investor, without more extenuating circumstances, was not considered to be a fiduciary one. Rather, it was one of "suitability," that is the advisor should recommend or buy no investments that were inappropriate for the client's circumstances. However, due to headline business frauds, e.g. Bernie Madoff, investors have sought more protection. Should investors be able to hold brokers or others accountable for the risks in their investments? The Department of Labor recently issued a new rule under the Investor Protection Act of 2010 (now part of Dodd-Frank) that requires a stockbroker managing retirement accounts to act as a fiduciary and to serve the client's best interests. This paper looks at the protections that investors historically have had from violations of ordinary care and/or fiduciary duty in some circumstances and the effects of this new rule. [ABSTRACT FROM AUTHOR]