The SEC recently adopted a new Regulation Best Interest (Reg BI) standard code of conduct for stockbrokers and broker-dealers to follow when providing consumers with financial advice and investment recommendations. Unfortunately, the new rules do not go far enough to legally and morally bind brokers and their firms to the more rigorous fiduciary standard required of financial advisors, registered investment advisors (RIAs) and CERTIFIED FINANCIAL PLANNER™ professionals. As a result, consumers must do their homework and ask the right questions to ensure that the advice they receive is, in fact, in their best interests and not influenced by the potential financial gains that their brokers may enjoy.
In the world of financial services and investing, there are many types of professionals who consumers may turn to for guidance, including brokers and financial advisors. Contrary to popular belief, brokers are not the same as financial advisors, nor are they regulated by the same set of rules. However, clarifying the difference between each type of professional is complicated by the fact that both consumers and professionals themselves use these terms interchangeably.
For example, only investment advisors and financial advisors are bound by a fiduciary standard of care. Reg BI defines these professionals as those who “provide ongoing, regular advice and services in the context of broad investment portfolio management, and are compensated based on the value of assets under management (“AUM”), a fixed fee or other arrangement (“fee-based” compensation or model).” Conversely, brokers, broker-dealers and insurance agents, who may refer to themselves as financial advisors or wealth managers, provide “transaction-specific recommendations and receive compensation on a transaction-by-transaction basis (such as commissions)” are merely required to act in their customers’ best interests at the time they make recommendations. While this calls for brokers to “mitigate” conflicts of interest, it does not prevent them from recommending products in which they can reap financial gains.
The best way to seek out and ensure that the financial professionals with whom you choose to work hold themselves to the highest standard and put your best interest before their own is to ask questions and always request written confirmation.
Reg BI is a step up from the current suitability standard that requires brokers to make recommendations that are “appropriate” to investors’ unique goals and risks, but it does not rise to the fiduciary standard’s higher level of investor protections. In response, some states are taking matters into their own hands and introducing legislation requiring all financial professionals within their borders to adapt the fiduciary standard and always put the best interest of their clients ahead of their own, regardless of their titles or the types of clients they serve. In the meantime, brokers and advisors will continue to be governed by two different standards, causing ongoing confusion for consumers will who bear the burden of trying to distinguish between the two.
About the author: Todd A. Moll, CFP®, CFA, is a director and chief investment officer with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors and Accountants, and a registered representative with Raymond James Financial Services. He can be reached at the firm’s Ft. Lauderdale, Fla., office at (954) 712-8888 or via email at firstname.lastname@example.org.
Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Todd A. Moll is a registered representative of and offers securities through Raymond James Financial Services, Inc., Members FINRA/SIPC.
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