Wall Street Meets Madison Avenue;
Brokerage Firm Ads Establish New Standards of Conduct

nvestors should be delighted to see how brokerage firms now are promoting themselves in their advertisements.

In this decade, we have witnessed a remarkable transformation of the person formerly referred to as a "stockbroker". Their role dramatically has increased from what once was that of mere order takers, with duties limited to completing the securities transaction, to something much more. Now, stockbrokers are called "financial consultants" or "financial advisers". And the brokerage firms (or, more accurately described in today's environment, the financial and investment advisory services firms) now promote, and thus define, their role as that of comprehensive financial advisers.

Securities regulations require that a firm's advertisements be accurate and not mislead or make exaggerated or unwarranted claims. Likewise, most if not all state consumer fraud and deceptive business practices laws provide causes of action for such misleading advertisements. Importantly, the aggrieved investor need not have relied upon or even seen the advertisements, so long as the ads have a tendency or a capacity to deceive.

So, what is the new brokerage firm all about? What role does it play? What duties has it assumed? Among the scores of advertisements run by most of the major major brokerage firms, these are some of our favorites:

Solomon Smith Barney: "Sometimes, NO is the most positive advice we can give.... Helping you avoid the wrong investments is as important as finding the right ones. If you're in the market for a financial partner who's not afraid to say no, talk with a Smith Barney Financial Consultant."

Morgan Stanley: "Working one-on-one with your personal Financial Advisor, we'll analyze your current holdings, create an asset allocation plan and then customize your [IRA] rollover from a wealth of investment options. It's more than a rollover plan. It's your personal blueprint for financial success."

Prudential Financial. "Growing and Protecting Your Wealth. Protect yourself against market volatility. We'll help you create a customized asset allocation to find the right mix of stock, bond and cash equivalent investments. Our world-class research team will help you identify which areas are poised for growth - and which could pose a risk. And we'll help you employ proven techniques for managing volatility, like dollar cost averaging."

Merrill Lynch: "Is it necessary to take unnecessary risk? Merrill Lynch Wealth Management. Review our market outlook. Re-evaluate your financial goals. Reassess your risk. Rebalance your assets (Your Financial Advisor may suggest reallocating some equity positions, diversifying your bond portfolio between taxable and tax-free issues and taking a defensive position in cash equivalents like CDs, T-bills and money funds)."

Merrill Lynch: "A relationship with a trusted Merrill Lynch Financial Advisor is the key to success…. The Merrill Lynch Wealth Management Process is based on these fundamental phases:

• Analyze: Set objectives in light of your goals; determine your risk tolerance and your time horizon for accessing your wealth.
• Set Strategy: Determine appropriate asset allocation and diversification strategies within asset classes.
• Implement: Select appropriate stocks, mutual funds, alternative investments, bonds and cash instruments.
• Monitor: Regularly review your portfolio with your Financial Advisor and rebalance when required.

Last year, approximately 7,000 investors filed arbitration claims to recover their investment losses. Some investors undoubtedly noticed a gap between what their brokerage firms promised and represented in their ads, and what the investors received. One common complaint has been the brokerage firms' failure to guard against risk, or hedge, and the related complaint that there was no monitoring — no regular reviews and rebalancing to reduce risk, as promised and represented.

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James J. Eccleston is a securities attorney, representing investors as well as brokers and brokerage firms nationwide in arbitration, litigation and regulatory matters. He is a past co-chair of the Chicago Bar Association's Securities Law Committee, a past chair of its Financial and Investment Services Committee, a registered investment advisor and a licensed securities principal of the National Association of Securities Dealers (NASD). He maintains an informative website at www.FinancialCounsel.com. He is an equity partner with Shaheen, Novoselsky, Staat & Filipowski and can be reached at 312-621-4400.