The question must be asked…Why are the financial institutions so adamant about the fiduciary standard? What do they have to hide? Shouldn’t the best interest of the client always be first? What do the financial institutions have to hide? How does the investor know that the investment recommended is in their best interest?
Although most investors falsely assume registered representatives are required to provide advice and recommendations in their best interest, momentum is gaining to turn this myth into fact.Currently advisers are only required to adhere to a suitability standard of care which means they must advise “suitable” investments pertaining to clients’ objectives, income level and age – but not necessarily the best investment for the client.
A fiduciary standard ensures the adviser will advise the best options for the client, and always put the client’s interest before the advisers’. It also requires investment advisers to provide up-front disclosures about their qualifications, what services they provide, how they are compensated, possible conflicts of interest, and whether they have any record of disciplinary actions against them.
For example, if the broker has a choice of two similar mutual funds for a client’s account, they are currently able to sell the one that’s twice as expensive as the other (often meaning a larger commission for the broker). If a fiduciary standard is implemented, it would require the broker to sell the client the mutual fund sold at the best deal for the client.
The fiduciary standard will help recover the lost trust by the public. It will require financial representatives become more knowledgeable about what they sell to who.
Please comment or call to discuss how this affects you.
- Fiduciary Revolution. (401kplanadvisors.com)
- How Is Your Financial Adviser Paid? (401kplanadvisors.com)
- Survey: Fiduciary Duty Top Reason Investors Choose RIAs (401kplanadvisors.com)