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WEDNESDAY, NOVEMBER 25, 2009
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Madoff Scandal Turns Up Heat on Financial Advisers

Loophole lets Madoff types profit from bad advice, they say

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(Newser) – Wall Street advisers and brokers are tussling over the details of a looming regulatory overhaul as Washington takes steps to prevent another Bernard Madoff scandal, Bloomberg reports. Advisers want brokers who counsel clients to be subject to the same oversight they’re under; currently, their brokerage counterparts can profit by swaying customers to buy their firm’s own financial offerings, even if they’re a bad risk.

Though subject to federal oversight, brokers remain exempt from laws that require advisers to act in clients’ best interests. Brokers resist the proposal, calling additional regulation unnecessary. But existing rules didn’t stop Madoff’s scheme, which President Obama says indicates “how badly reform is needed.” A revamp will probably include a watchdog for the millions of fee-based brokerages.

Many customers can't tell the difference between brokers and advisers. The former, paid when transactions are bought and sold, can profit from bad advice without legal consequence.
Many customers can't tell the difference between brokers and advisers. The former, paid when transactions are bought and sold, can profit from bad advice without legal consequence.   (AP Photo/David Karp)
Bernard Madoff leaves federal court Jan. 14, 2009, in New York.
Bernard Madoff leaves federal court Jan. 14, 2009, in New York.   (AP Photo)
Obama has indicated that Washington will reform financial regulation to avoid another Madoff scandal.
Obama has indicated that Washington will reform financial regulation to avoid another Madoff scandal.   (AP Photo)
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Brokers should have a fiduciary responsibility to give you information that is accurate, unbiased and true, because if they’re not, they’re snake-oil salesmen.
- Michael Muhm, TD Ameritrade customer

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