In Focus
October 10, 2003
ave brokerage firms forgotten the Shingle Theory? First announced about 60 years ago by the SEC, the Shingle Theory requires brokerage firms and their brokers to act fairly with their customers. Both the NASD and the NYSE require similar behavior. The NASD requires firms and brokers to "observe high standards of commercial honor and just and equitable principles of trade." The NYSE requires "good business practice."
How do those requirements square with the brokerage firm research analysts' shenanigans and the firms' failure to disclose those conflicts of interests? How much "commercial honor" did the various mutual fund companies have in allowing a select few hedge fund managers to time the market and to place trades after market close, all to the detriment of the funds' retail investors?
Likewise, and as detailed in the article, $2 Million Fine Exposes Conflicts of Interest Between Morgan Stanley Dean Witter and Its Customers, brokerage firms continue to push investment product such as proprietary mutual funds.
And consider that an Illinois investor (whom I represented) recently was awarded $2.8 million against Edward Jones & Company, alleging, among other things, that the broker churned his account to make his numbers look good in a bid for partnership at the brokerage firm.
Brokers once were called something besides "Financial Advisors" and "Financial Consultants." They were called "Customers' Men." They worked for (and owed duties to) the customer. Although the name has changed, the duties remain the same. Let's try to remember that!
Investors, and brokers, beware!
— James J. Eccleston
FinancialCounsel.com
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