Retail investors, particularly senior citizens, need competent and careful investment advice more than ever before. Many must rely on the services provided by investment advice providers, including broker-dealers. Regulators have sounded the alarm about sales of risky, complex products to retail customers in search of better returns, especially senior citizens and retirees. Both the SEC and FINRA have identified abusive broker-dealer sales practices as priorities in their examinations of broker-dealers and have brought numerous enforcement actions against broker-dealers for sales practices that harm retail investors. These enforcement actions frequently allege both failures of the firms’ due diligence processes to assure the suitability of recommended investments and failures of the supervisory and compliance systems that are supposed to detect and deter impermissible sales practices.
In this essay, prepared for the Wake Forest Law Review Business Law Symposium, Agency Theory: Still Viable?, I explore whether Michael Jensen’s integrity framework, set forth in Werner Erhard & Michael C. Jensen, Putting Integrity into Finance: A Purely Positive Approach (3 March 2013), could provide an effective alternative for improving broker-dealers’ sales practices.
Black, Barbara, "Curbing Broker-Dealers' Abusive Sales Practices: Does Professor Jensen's Integrity Framework Offer a Better Approach?" (2013). Faculty Articles and Other Publications. 208.