Is Your Adviser a Fiduciary?

Answer: Probably not, if your adviser is a broker (AKA a “Financial Consultant” or “Financial Adviser” employed by a brokerage firm).

“Brokers, like those at the Toffels’ bank, are technically known as registered representatives. They are required only to recommend “suitable” investments based on an investor’s personal situation — their age, investment goals, time horizon and appetite for risk, among other things. “Suitable” may sound like an adequate standard, but there’s a hitch: It can mean that a broker isn’t required to put a customer’s interests before his own…

“There are some specific situations when brokers must act as fiduciaries — for example, when they collect a percentage of total assets to manage an investment account, or when they are given full control of an investor’s account. But under current rules, a broker can take off his fiduciary hat and recommend merely “suitable” investments for the same customer’s other buckets of money…”

“It may be less confusing for consumers to simply pay for advice through “fee-only” independent financial planners who are fiduciaries.”

The Washington Post has also jumped on this confusion.

H/T: Mark Ukrainskyj on LinkedIn

Of course, the Wall Street Journal has covered this issue for a long time, so it is interesting to note the NYT and WaPo’s recent interest.


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2 Responses to Is Your Adviser a Fiduciary?

  1. tuliptown says:

    why are there not performance numbers for CFA’s or other advisors?
    Sometimes there is a “representative account” but I am always suspect when its not more than old enough to encompass the great recession.

    That said, I do my own and I don’t keep strict records so I may not be able to judge a good one from a not so good one….

  2. Ray Galkowski, CFA says:

    In general, a big reason for the scarcity of performance data is that even when a manager has discretion over investments, s/he should be tailoring the portfolio to the client’s specific needs and ability to tolerate certain risks. So, generalized performance numbers may not tell the appropriate story. For example, an adviser whose clientele consists mostly of retirees should have different results from one who caters to millennials.

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