Ethical Standard for Stockbrokers in the United States: An Ethical Analysis of the Suitability and Fiduciary Standards

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Title
Ethical Standard for Stockbrokers in the United States: An Ethical Analysis of the Suitability and Fiduciary Standards
Author
JulieAnne Ohashi-Sides
Faculty Sponsor
Anna Mahony
Gavin Keulks
Date
4/1/2020
Abstract
The everyday investor enters the investment world with an inadequate understanding and knowledge of the market. More often than not, these retail investors turn to the expertise of financial intermediaries, such as stockbrokers or investment advisors. This paper will investigate the relationship between principal and agent as it pertains to the financial service industry. More specifically, the current ethical obligations that dictate stockbrokers’ practices will be examined and compared to proposed reforms. In the United States brokers have a legal and ethical requirement to recommend only “suitable” investments to their customers. This standard generates numerous conflicts of interest between brokerage firms and the customers they serve; the products that pay the highest commissions for the broker, may not be the best investment options for the customer. Currently, there are proposals to raise the standard to a fiduciary duty of care, in which recommendations are solely in the best interest of the client. In part one of this thesis, there will be a focus on the analysis of brokerage firms’ revenue streams and apparent conflicts of interest. This section will also look at the historic development of both suitability and fiduciary standard, as well as briefly discuss the current legislative development of ethical standards in the investment industry. In part two of this thesis, focus will be directed to the role of ethics in finance as a whole. Here, an analysis and comparison of various ethical theories and debates will be highlighted; primarily stemming from the neoclassical economic rationale of ethics and variations of agency theory.
Type
Text
Honors Thesis
Department
Honors Program
Language
eng
Rights
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Identifier
honors_theses/222