Here is some Finance 101. The subject came up during the public show trial staged last year by the Democrat Congress featuring the executives of Goldman Sachs. It showed the general ignorance of many members of Congress and the inability of most of the media to educate the public.
When a financial company creates a form of security and places it up for sale, it is technically a market-maker, not an adviser and, therefore, has no fiduciary responsibility. Neither is it a broker, unless it sells the security.
Up to recent SEC admonitions, brokers have had no fiduciary responsibility. They do have to sell what is deemed ”suitable” for the customer. Therefore, a broker cannot sell risky securities, for example, to widows and orphans without their express knowledge. They can sell suitable risks to highly sophisticated investors.
Goldman Sachs, under the Congressional spotlight, were market- makers. They were also dealing with seasoned institutions who knew risks and frequently sold short, in the hope markets would fall; often with both positions at the same time, as a hedge.
Advisers, on the other hand, generally give advice and suggestions only. They are not market-makers, nor are they brokers.
Something for politicians to learn. ( See the Earl J. Weinreb NewsHole® comments.)
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