Merrill Lynch fined $10 million for trading against customers’ or

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For years, I’ve warned about the danger of doing business with full commission stockbrokers. What used to be called the “Merrill Lynch rule” in the industry meant that full-commission stock brokers didn’t legally have to put their customers’ financial interests first. They could actually steer a customer to an investment that padded their own pocket instead.

In the lingo of the trade, it’s said that full-commission stockbrokers don’t have “fiduciary duty.” Instead, they only have to make sure your investments meet a very weak standard of “suitability” for your age and income and so forth.

Now it’s emerged that Merrill Lynch was gaming the system from 2002 to 2007 by taking buy/sell orders from institutional customers and trading on that info to the great harm of their customers and to the direct benefit of the company. (This took place before Merrill Lynch was bought by Bank of America.)

The truly outrageous thing is that Merrill Lynch, which admitted no wrongdoing, was only fined $10 million by the SEC. $10 million is nothing for Merrill Lynch, it’s so unbelievably penny ante. Yet if you or I stole somebody’s money, which is effectively what they did, we would go to prison.

Now, a word in defense of Merrill Lynch and all full-commission stockbrokers. It is possible to find honest people working at full-commission houses who will put your interests first as a customer, even though they have no legal obligation to do so.  

Just know this: Just because somebody seems like a swell guy and has a great personality, it doesn’t mean they’re looking out for you. They may be lining their pockets first and you’re left with the crumbs.

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