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Island Investing

Riffs, rants, and the upside of investing from way off Wall Street


An Important Distinction, Missed

Another example of how the financial media routinely disservices the individual investor.

The online version of The Wall Street Journal is currently running an article titled “In Obama’s Overhaul, Big Change For Brokers.” If you’re a subscriber, you can read it here.

The article contains a graphic that is stunningly incorrect. And if the journalists who wrote the article are confused, can you blame investors for being baffled?

Here is the graphic:


The first sentence in the above makes it sound like “fiduciary duty” is a box on a checklist that a broker must sign off on before “pitching investments.” That was the first clue that the authors – or the graphics people, or the editor – failed to grasp what a fiduciary duty is really all about. Them came the kicker – the bar graph.

Here are the comments I just posted on the WSJ site about it:

The graphic in this article is terribly misleading. It implies that all investment advisors at the firms listed already have a fiduciary duty. They do not.

Included in your total numbers of “investment advisors” at each firm are stock brokers and registered reps, and they are not held to any fiduciary standard. Investors should know that investment advisors affiliated with a broker-dealer firm are most likely not fiduciaries.

If the investor signs an NASD binding arbitration agreement (which is required by almost every broker-dealer firm), then the firm’s advisors would not be held to a Fiduciary Standard by the North American Securities Dealers. CFP practitioners and financial planners will be held to a Fiduciary Standard if they are also Registered Investment Advisors (RIA).

So it would be helpful to differentiate between “investment advisors” – a job title used at the big wirehouses unrelated to a fiduciary standard – and Registered Investment Advisors, typically independent advisors who are legally held to a fiduciary standard by state and/or federal regulators.

This sort of confusion is no doubt why these changes are being considered.

More from the Focus on Fiduciary website (

“Unfortunately, only a small proportion of ‘financial advisors’ are federally or state-registered Investment Advisors. Most so-called financial advisors are considered ‘Broker-Dealers’ by the United States Securities and Exchange Commission (SEC). They are held to a lower standard of diligence on behalf of their clients. In fact, they are required by federal law to act in the best interest of their employer, not in the best interest of their clients.”

Mistakes like the above happen in journalism – these days especially, when “old media” outlets like The Wall Street Journal are more pressured than ever to put out news before the blogosphere, cable news and each other. And I’m very much aware that the media exists for one primary reason – to sell ads. To expect much in the way of public service or investigative journalism is to be disappointed.

But unlike the media coverage of politics, sports, music or celebrities, mistakes in financial journalism can cost people significant sums of money.

I also find it ironic that as a portfolio manager I can’t publicly disclose anything that might in any way be perceived as an investment recommendation without disclaiming the dickens out of it…while every month the popular financial magazines show up on news stands with cover page headlines like “50 Great Stocks and Funds” (the June 22nd Fortune), “A Simple Strategy for Fixing Your Portfolio” (the July Money), and “3 High-Paying Bonds to Boost Your Portfolio” (the June SmartMoney). It’s financial porn.

I’d like to see The Journal and other financial outlets take a cue from Jon Meacham’s latest changes over at Newsweek. After all, media people, I can now get my news instantly, anywhere, thankyouverymuch. Be a filter, not a flood. I’ll happily wait a day or two for your story to come out if it contains some real analysis and insight. And I don’t have to agree with it. In fact, if it challenges how I think about something, all the better.

But rushing something out like the above is just irresponsible. Investors deserve better from the financial media.

Until then – stay frosty, investors. It’s easy to get snookered.