Wall Street’s unique way of “protecting” small investors

Is the person who handles your money a stock broker or an investment adviser?

It makes a difference. Investment advisers, who are registered with the Securities and Exchange Commission, are held to a fiduciary standard, which means they have to put your interest ahead of theirs. If an adviser is choosing from a list of 5 similar mutual funds that might be suitable for you, he or she can’t pick the one with the biggest fees.

Brokers, who are registered with the self-regulatory organization Finra,  can look at that same list of 5 suitable funds and pick the one that puts the most money in their pockets. Regulators who watch over retirement funds at the Department of Labor don’t like that brokers can get away with that, and have proposed a rule that would force them to put your interests first just like advisers do.

Wall Street has been having an institutional temper tantrum over the idea that its brokers might have to put customers’ interests first. And the industry has actually concocted an argument that putting customers’ interests first would not be in customers’ best interest. I’m serious.

You can read about it here in my latest column for TheStreet.

Years of Overlooked Red Flags Catch Up to Stockbroker

Finra, the securities regulator that’s funded by Wall Street, got some attention last week when it said it was getting tougher on bad stockbrokers. The regulator said fines were going up and sanctions for fraud and the sale of unsuitable products were getting more onerous.

But Finra already had sanction guidelines that might have come to play in the case of Jerry A. Cicolani, Jr., a former broker who worked at Merrill Lynch and at Cleveland’s PrimeSolutions Securities Inc. Somehow, though, despite having been target of 69 customer complaints over the past 13 years, Cicolani wasn’t barred from the business until last September.

By that time, criminal authorities already were moving in with an investigation into his role in a Ponzi scheme. On May 1, he pleaded guilty to two criminal counts, including the sale of unregistered securities. He persuaded many of his former clients from Merrill and PrimeSolutions to invest in that scheme. I wrote about Cicolani in my story yesterday for The New York Times. You can read it here.