Here’s a topic we never grow tired of talking about at Mullooly Asset: the fiduciary standard we have to our clients as registered investment advisors. To refresh your memory a fiduciary has the legal obligation to put your interests ahead of their own or their firm’s. When you work with fiduciary you’re going to get clear and unbiased financial advice, something everybody is entitled to. Brokers (or registered representatives) only abide by a much more relaxed suitability standard. The suitability standard is, at best, a vague, blurry line that tends to favor brokerage firms more than investors. Barry Ritholtz wrote an excellent article that was featured in the Washington Post over the weekend titled, “Find a Financial Adviser Who Will Put Your Interests First”. Amongst other great points, Barry used an awesome analogy to highlight the main difference between brokers (registered representatives) and registered investment advisors (RIA’s) saying:
“If you want financial advice, there are two things you should be aware of: First, the quality of advice you receive varies widely. You probably knew this already. The quality of everything you buy varies widely. It is as true for financial advice as it is for any product or service you may buy or otherwise consume. You can buy a Yugo or a Mercedes-Benz. They may both be automobiles, but they vary dramatically.
Regardless, everywhere these cars are sold, they each must meet the same government rules. Safety regulations, crash worthiness standards, fuel economy, consumer warranties, etc., apply equally to both vehicles.
This is decidedly not true of the people who provide you with financial advice. So we come to the second point: There are two completely different standards for these people — they are governed by two wholly different sets of regulations. The two standards are ‘suitability’ and ‘fiduciary.'”
Registered investment advisors, like Mullooly Asset, are regulated by the SEC and answer to a strict fiduciary standard. Brokers (registered reps) fall under the jurisdiction of the self-regulated organization FINRA. Brokerage firms seem to like the looser, “suitability” standard afforded to them by FINRA. This is apparent in the lobbying efforts seen from big Wall Street firms each time a fiduciary standard for brokers is brought up.
Neither I (nor Ritholtz in his post) are insinuating that all brokers (registered reps) are bad guys. That’s not true and isn’t the point here. What I do believe is that it’s an intelligent decision to work with an investment advisor who not only says they have your best interests at heart, but who’s also legally obligated to do so. Everybody in entitled to clear and unbiased financial advice, so find an investment advisor who can provide you with it. I strongly recommend asking any investment professional whether they have a fiduciary obligation to their clients before doing business with them. You need to know who’s giving you advice and what (if any) potential conflicts of interest may exist.
I encourage you to read Barry’s post from over the weekend in its entirety. You can find a link to it below.
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