Trust, Guilt, and Securities Regulation

This Article analyzes the importance of trust in securities investing and how guilt about breaching such trust has implications for securities regulation. Both U.S. federal securities laws and the regulations of the National Association of Securities Dealers impose high standards of professional conduct upon securities professionals. But exactly what are and should be the legal responsibilities of securities professionals remain the subject of much debate. In particular, courts disagree over when 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 analyze the emotional, moral, and psychological consequences of broker-dealers\u27 being fiduciaries. This Article explains how finding that securities professionals are fiduciaries can alter both expectations about securities professionals\u27 behavior and that behavior itself, as well as cause those professionals to feel guilt from breaching their clients\u27 trust or pride from honoring such trust. This insight has implications for the costs and benefits of finding a fiduciary duty. In particular, there is an emotional or psychological deterrence effect, in addition to the deterrence effect of monetary fines or legal sanctions, from finding a fiduciary duty. This Article demonstrates how fiduciary law can affect behavior even without extensive enforcement or severe legal penalties