Vermont Bar Journal, Vol. 40, No. 2 Spring 2015, Vol. 41, No. 1 | Page 31

by Rick Hubbard, Esq.

Must Your Broker Always Place
Your Investment Interests First?
We attorneys are sensitive to questions
of conflict of interest. When we hire a feeonly investment advisor, they are required
to act in our best interests. If instead we
hire a broker to recommend investments
for us, shouldn’t we expect them to also
act in our best interests? After you’ve read
and thought more about the issues raised
in this article, what’s your opinion?
This is the subject Dave Umstead, PhD,
CFA, President and Founder of Cape Ann
Capital, covered in part of his recent VBA
CLE presentation on March 20th. It’s also a
hot topic nationally, as President Obama
recently directed the U.S. Department of
Labor to move ahead on a fiduciary rule
that would raise investment advice standards for brokers handling retirement accounts.
This issue of different standards has been
recognized and discussed for many years.
So far, government officials have failed to
act in any significant way. Do you think

this has anything to do with the huge campaign contributions coming from the financial industry to Washington politicians and
their parties, who in turn have become incredibly dependent on this money? If government fails again to act, how does this
square with its obligation to protect the
public’s interests?
Many in the financial industry aren’t happy with the Obama proposal. The Wall
Street Journal, in a February 25th op-ed,
thinks it’s a terrible idea. It points out that
one way or another, fees are paid for investment advice and that the two different standards now in use are the result of
existing regulations. Among its other arguments, the WSJ says that more broadly requiring the stricter fiduciary standard
would carry enormous liability for those
brokers now subject to a lesser standard,
and such heightened liability may convince
brokers that their best course is to say
nothing, especially to investors with small

accounts that can’t generate much fee revenue anyway.
After researching related examples in
connection with his VBA presentation, and
perhaps agitated by the WSJ op-ed, Dave,
together with his business partner Jim Jasinski, have prepared their own responsive
argument on this issue, which is included
below with its related exhibits and graphs.
As you read the article