Many financial advisors are dual-registered—that is, they are a registered representative of a broker-dealer and an investment adviser representative of an investment advisor.
Each registration has its requirements for the level of care. An investment advisor is a fiduciary. That means they owe the client a higher oath of loyalty. They must act in their best interest and disclose any conflicts of interest.
Registered Representatives are not fiduciaries. However, they do have a standard of care required called suitability. The advice they offer must be suitable for a client based on the customer’s particular situation. However, they do not have to show their or their employer or broker-dealer’s conflicts of interest.
What Registration is Right for You?
Most of my asset management business (90%) is as an investment adviser representative (fiduciary) where I charge the client a level or flat fee usually based on the size of their portfolio.
If the client has a smaller account such as a Roth IRA, 529 Plan, or a teacher saving in a 403(b) plan at work occasionally, I do receive commissions through my job as a registered representative. Most of these clients end up paying less with a commission product. Moreover, maybe they do not need the same level of time as clients that are being charged an annual fee.
A Uniform Standard of Care
Under the 2010 Dodd-Frank Act, Congress directed the Securities and Exchange Commission (SEC) to study the need for establishing a new, uniform, a federal fiduciary standard of care for brokers and investment advisers.
The SEC recommended after the study that registered representatives adopt the same standard of care as investment advisors.
Having a uniform standard would make it easier for investors. As many are unaware that there are two standards and that the same financial advisor could be wearing both hats.
If that is not confusing enough, there is already a third standard.
This is a fiduciary adviser that fall under ERISA. They have the highest standards. Unlike investment advisors who can have conflicts as long as they get disclosed. A fiduciary adviser must cut all conflicts.