According to the Pennsylvania Securities Commission, brokers for TD Ameritrade misled investors in 2007 in order to sell a mutual fund, taking advantage of customers looking for higher returns. A certain mutual fund, the Reserve Yield Plus Fund, was sold as a high-rate investment to investors looking for a money market fund. The brokers allegedly characterized this fund as a money market fund despite containing a riskier mix of underlying investments.
Customers often look to brokers as financial experts. Some may be, but first and foremost, their loyalty is to their own wallet. I can understand how these particular brokers may have been put in a difficult position by their superiors. They were asked and encouraged, likely with a financial incentive, to sell a product regardless of a customer’s needs. For all purposes, brokers are salespeople, not fiduciaries.
Most of us don’t have medical degrees; we rely on doctors to provide advice in our best interest. In a perfect world, all doctors would abide by the Hippocratic Oath and make prescription decisions based on the best tools for the job rather than their relationships with pharmaceutical companies. The continued existence of professions requiring years of advanced study relies on that profession convincing the public that their services cannot be self-administered.
The financial industry is doing a bad job in that respect. Brokers have no obligation to recommend investments in the best interest of their customers, so many feel no moral remorse for selling products that line their own pockets the best.
It doesn’t surprise me that more investors are dropping brokers and taking the self-service investing route with discount brokerages. There is enough free information available online for typical investors to make basic decisions about their own investments rather than rely on full-service brokers.
TD Ameritrade Faces Civil Fraud Complaint Over Reserve Fund, Daisy Maxey, Wall Street Journal, August 4, 2010
Published or updated August 5, 2010.