I caught a show on PBS, I believe, where a man has a call-in show and people get free advice from him on good investments. I thought it was not legal for a person to make such outright recommendations. What gives?
I think it’s only illegal to give insider information out. Telling people what you think they ought to invest in is 100% legal. People make a living at it!
I forgot to add…if people are calling into the show, it’s not unsolicited. They’re there because they want to hear what the guy has to say.
The issue that keeps professionals like this from giving advice is one of civil liability, not criminal illegality. If a financial advisor won’t tell you how to invest without an in depth personal consultation (and the usual fees) it’s not because he’s afraid of going to jail. It’s because he’s afraid of getting sued.
OTOH, brokerages give unsolicited investment advice all the time: they’re called research reports. Basically, they write up a report on a particular stock and why it would be a good investment. No one asks them in advance.
There are also SEC rules about what advice you can give. You cannot imply any guarantee that a stock will rise, for instance (to see what type of advice is against SEC regulation, check any stock report in your spam filter). You and your employer can be fined for breaking the rules.
You can, however, say, “I think this stock will go up in the next few months.”
The SEC and NASD require that a person must meet several tests to be required to hold a securities license. I can eleborate tomorrowwhen I have the code in front of me if anyone is interested, but a person must be in the business of giving advice for compensation and have a base of a certain number of clients to be subject to licensing requirements. There are also exemptions for those who advise entities like banks and insurance companies. It is generally considered that they don’t need protection from unqualified advice.
The callers would also be screened. So they should get a warning about losing all their money if the advice turned out to be less than perfect. E.g., their children would be sold to Nike to work in sweat shops making sneaker eyelets, etc. Then they get an agreement (possibly recorded) from the caller indicating that they understand the warning.
OTOH, the listeners may not be considered to have been officially forwarned.
Secondly, just about any financial advice I’ve ever seen has been extremely bland and generic. The Motley Fools in particular are completely useless. Someone asks what they think about Ford and the response is no better than “Ford makes cars.”