Shingle Theory

In the 1930s, the Securities and Exchange Commission introduced a doctrine of sorts that contained the shingle theory. It’s a little outdated today, especially since brokerages can operate without a brick-and-mortar store (ergo the “shingle”), but also for other reasons. The shingle theory is the theory that a broker who opens up a shop (“hanging a shingle”) will be an honest and fair businessman with his customers, taking responsibility where it’s due.

It’s a nice idea, but the real world tells us to be on our guard with brokerages. While there are legit brokerages out there, there are also scam brokerages, and everything in-between (think: “grey” brokerages that aren’t all scams, but aren’t totally honest, either).

The U.S. government has tried to keep brokers honest. There’s the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and other agencies that have slapped rules, regulations, and oversight onto brokerages. A few bad apples ruin the party for everyone.