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Still Using A Commissioned Broker As Your Financial Advisor?

Be sure to do your homework.  Are you working with a fiduciary?  Why is that important?

In 2016, a new word entered many investors' vocabularies: Fiduciary. Even for those who’ve heard it before, the term took on a whole new meaning when the Department of Labor's Fiduciary Rule1 (Fiduciary Rule) was released. A fiduciary is a person or entity that has the power and responsibility of acting for another. It is the highest legal obligation for one party to act in another’s best interest. An advisor acting in a fiduciary capacity MUST place the interest of clients ahead of their own.

To understand the intent of the Fiduciary Rule, it’s important to understand that not all financial advisors are fiduciaries. Research shows that nearly half of Americans believe all advisors are legally required to act in their clients' best interests.2 Not true … surprisingly, brokers are not obligated under the law to act in the best interests of their clients. Rather, brokers are simply held to the suitability standard.3 Brokers are not required to ensure the products or advice they provide are in the clients’ best interests, and while brokers must disclose conflicts of interest, they are not obligated to avoid conflicts. A fiduciary, on the other hand, has a legal obligation to provide the highest standard of care by acting in the best interests of their clients at all times, which includes avoiding conflicts of interest.

Boundaries in the financial world have blurred, and the line between brokers and investment advisors has all but evaporated in recent years.  In the past, a broker’s job was mainly transactional; however, today brokers frequently advise clients regarding security selection and asset allocation. Unfortunately, brokers can recommend costly products over a less expensive alternative which may not be in the client’s best interest … and which are sometimes misused and oversold to boost commissions. That’s not to say that all brokers function at the expense of their clients. In fact, many brokers consistently put the client first; however, it’s not a legal requirement. 

What should you do?  Do your homework. 

  • Know whether your advisor is required to put your interests first. 
  • Consider an independent Registered Investment Advisor who must operate in a fiduciary capacity.
  • Ensure that your interests are aligned with your advisor’s compensation.

When entrusting someone to manage your wealth, you should be confident they have your best interests at heart.

CORE Investment Management, LLC

Investment Advisory Services offered through Asset Management Financial Services, Inc., a Registered Investment Advisor.

Ethically bound by our fiduciary duty, we are privileged and
required  to put our clients’ interests ahead of our own.

1  https://www.bankrate.com/glossary/f/fiduciary-rule/
2 https://www.businesswire.com/news/home/20170418005420/en/Ninety-Three-Percent-Americans-Financial-Advisors-Fiduciaries-Increasingly
3 http://www.finra.org/investors/suitability-what-investors-need-know