Legal Implications of Guilt and Pride for Securities Regulation

Abstract

This Article considers how guilt and pride about investing has implications for securities regulation. Both U.S. federal securities laws and the regulations of the National Association of Securities Dealers impose very high standards of professional conduct upon securities professionals. But, exactly what are and should be the legal responsibilities of securities professionals remains the subject of much debate. In particular, disagreement exists over whether broker-dealers are fiduciaries of their clients. A legal consequence of a fiduciary relationship is a duty of fair dealing. This Article is the first to consider the emotional, moral, and psychological consequences of broker-dealers being fiduciaries. This Article explains how finding that securities professionals are fiduciaries can alter expectations about securities professionals' behavior, guilt from breaching their clients' trust or pride from honoring such trust, and securities professionals' behavior itself. This Article demonstrates how fiduciary law can affect behavior even without much enforcement or severe legal penalties.

JEL Classification: K22, K42, Z13