Data & Research September 15, 2010

Investors are “Clueless” as to Who Operates Under “Fiduciary Standards”

A recent survey found that the vast majority of investors do not know which financial professionals are held to official “fiduciary standards.”  
Reported by

The poll of 1,319 investors conducted by ORC/Infogroup revealed a population of investors who are largely confused about which financial professionals are required to operate under a “fiduciary standard,” requiring the financial professional to put their client’s interest ahead of their own.    

Such unanimous replies are not common in surveys, but 97% of investors agree that “when you receive investment advice from a financial professional, the person providing the advice should put your interests ahead of theirs and should have to tell you upfront about any fees or commissions they earn and any conflicts of interest that potentially could influence that advice.” 

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Likewise, investors often think they are getting fiduciary advice, when that is not necessarily the case: 

  • Three out of five U.S. investors mistakenly think that “insurance agents” have a fiduciary duty to their clients.   
  • Two out of three U.S. investors are incorrect in thinking that stockbrokers are held to a fiduciary duty.   

Barbara Roper, director of investor protection, Consumer Federation of America, said:   

“This survey confirms that investors are clueless when it comes to the different standards of care that apply to brokers and investment advisers.   They don’t even understand the differences between brokers, investment advisers, and financial planners, let alone that they are subject to different legal obligations to the client when they perform the same services.  This lack of understanding is not because investors are stupid; it is because, bluntly stated, the policy itself is stupid.  No one in their right mind would create a system in which individuals who call themselves by titles and offer services that are indistinguishable to the average investor are subject to two different standards when they do so.  But this is precisely the world that SEC policy over the past two decades has helped to create.  Now, Congress has given the SEC a chance to fix those past errors by adopting a policy that makes sense to investors and puts their interests first. ” 

 

Compliance September 15, 2010

Goldman Hit with Gender Bias Complaint

Three women who claimed they were examples of a systemic gender bias problem at Goldman Sachs have sued the Wall Street firm in federal court alleging discrimination in pay and promotional opportunities. 
Reported by

 

A Reuters news report said that the suit charges managers at the firm of having few limits on their ability to assign responsibilities as they see fit which has produced “unchecked gender bias.” As a result, only 14% of partners are women, 17% of manager directors, and 29% of vice presidents.

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“Goldman Sachs has intentionally implemented these companywide policies and practices in order to pay their male employees more money than their female counterparts, and to promote them more frequently,” the suit declared.

The suit requests class action status to represent women who have worked at the firm in the last six years as managing directors, vice presidents, and associates.

According to the news report, Lisa Parisi alleged she was significantly underpaid compared with male colleagues, including a 60% drop from 2005 to 2007, and had investments taken away from her despite her skill in stock picking. Cristina Chen-Oster alleged she was repeatedly shunted to lower-paying and lower-priority jobs, and had her accounts taken away after she returned from a maternity leave.

Chen-Oster also said that after a dinner at a topless bar to celebrate a colleague’s promotion, an event that all employees in her group were encouraged to attend, a male colleague attempted a sexual act with her. She also said she received a sexually charged e-mail from a male colleague that made fun of her Chinese heritage.

According to Reuters, Chen-Oster resigned from Goldman after eight years in 2005, while Parisi’s and Shanna Orlich’s jobs were terminated in 2008 after they had worked there since 2001 and 2006, respectively.

Goldman denied the allegations in comments to Reuters. “This suit is without merit,” spokesman Lucas van Praag said in an e-mail. “People are critical to our business, and we make extraordinary efforts to recruit, develop, and retain outstanding women professionals.”

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