Tuesday, March 8, 2011

Tax Consequences of Investments - Broker Duty to Consider?

In my view of the world, a broker has no duty to research or consider areas that are outside of their area of expertise, and tax implications of an investment are one of those areas. Excluding tax motivated investments, where the tax considerations  are the basis for the recommendation, it is the realm of tax attorneys and accountants to consider such issues, not brokers and advisers.

But is is an interesting question, addressed by Chris Lufrano in a recent blog post.

The analysis begins with a FINRA fine against Merrill Lynch for failure to supervise its representatives involved in the recommendation of college-savings products called 529 plans. FINRA’s disciplinary action against Merrill Lynch raises the question: do broker-dealers and their representatives have a duty to research, consider, or even understand the tax consequences of investment recommendations?


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