The standard of care that you receive from your financial advisor depends on what law your financial advisor is working.
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 standard 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 wealth management business (90%) is as an investment adviser representative (fiduciary), charging 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, 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, the 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.
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Expert and highly personalized financial planning, retirement planning, and independent investment solutions for individuals, couples, and businesses in Eastern Massachusetts, including Boston and surrounding cities. So when you need an independent financial advisor in Massachusetts - Salem or the North Shore, Hingham, or another town on the South Shore, Andover and the Merrimack Valley, MetroWest including Foxboro, or the Southcoast, Martha's Vineyard, Nantucket, and Newport, Rhode Island in my Dartmouth office.
There is no charge for the initial consultation, and it can be at your home, office, or favorite coffee shop.
If that is not confusing enough, there is already a third standard, a fiduciary adviser that falls 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.