Understanding Financial Advisor Registration: Fiduciary vs. Registered Representatives vs. ERISA

Summary: Explore differences between commission-based reps & registered financial advisors in Tim Hayes' post. Learn impact of recent SEC regulations on advisor standards.

Understanding Financial Advisor Registration: Fiduciary vs. Registered Representatives vs. ERISA

Many financial advisors are registered as both registered representatives of a broker-dealer and as investment-advisor representatives (IAR) of an investment advisor.

Investment advisors are fiduciaries who are held to a more comprehensive standard of agency. They must act in their client’s best interest and disclose any conflicts of interest.

Registered representatives are not fiduciaries. The advice they offer the client must suit the client’s particular situation. They must also act in their client’s best interest, but they do not have to disclose any conflicts of interest.

ERISA

If that is not confusing enough, there is a third standard, a fiduciary advisor who falls under ERISA, the law governing retirement and pension plans. Unlike investment advisors who can have conflicts of interest as long as these are disclosed, an ERISA fiduciary advisor must eliminate all conflicts.

Which Registration is Right for You?

I do most of my wealth management business (90%) as an investment advisor representative (fiduciary). I charge the client a level or a fee only, usually based on their portfolio’s size and complexity.

If the client has a smaller account, such as a Roth IRA or a 529 Plan, or is a teacher saving in a 403(b) plan, I opt to receive commissions as a registered representative. Most of these clients end up paying less with a commission-based product. Moreover, maybe they do not need as much time as those who pay 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 federal fiduciary standard of care for brokers and 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 wear both hats.

The New Rule from the SEC

Beginning June 30, 2020, broker-dealers will start operating under a new standard called Regulation Best Interest. This requires brokers to better align their interests with those of their clients by eliminating conflicts of interest, such as proprietary product requirements, sales quotas, or sales contests.

Registered representatives will now be called financial professionals. Any advisors who are fiduciaries can continue calling themselves financial advisors.

Some critics complain that the new standard does not meet the uniform standard’s original intent.

These are the opinions of Financial Advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice. Content provided via links to third-party sites should not be considered an endorsement of content that we cannot verify completeness or accuracy of.

Please share

Book a Free Virtual or In-Person Consultation with Tim!

The Advantage of an Advisor: Real Stories from Real People

Bryk Family

Client

"Tim has been our financial advisor for many years. He knows our family and has aligned his expertise with our goals. He has our best interest in mind and goes above and beyond in strategizing our portfolio in this ever changing landscape. We entrust him with three generations in our family and value our relationship."

"Tim Hayes has been a great financial partner for our family! He has been timely and his follow through always reliable! He has given us solid advice, has helped us to make good choices, and has been a source of reassurance and calm when we have needed! We highly recommend Tim!"

The Brodsky Family

Client

Mary Walsh

Client

"As a person whose only association with finance is balancing my checkbook once a month, I am incredibly fortunate to have Tim Hayes as my financial advisor. With the economy in the fluctuating state it has been in recently, if ever I have a question or am just feeling uneasy concerning my investments ,he responds very quickly and what I appreciate most about Tim is that he never ever talks down to me or makes me feel my question is unimportant I would whole heartedly recommend Tim Hayes."

Reviews on this site may or may not be by clients of the firm. No compensation is being provided for sharing of opinions and experiences on this site. The reviewer's comments may not be representative of any other person's experience and is no guarantee of future performance or success

Scroll to Top